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C OrYKlCHT DEPOSIT. 



THE 

SETTLEMENT OF WAGE 

DISPUTES 



THE MACMILLAN COMPANY 

NEW YORK • BOSTON • CHICAGO • DALLAS 
ATLANTA • SAN FRANCISCO 

MACMILLAN & CO., Limited 

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THE MACMILLAN CO. OF CANADA, Ltd. 

TORONTO 



THE SETTLEMENT OF 
WAGE DISPUTES 



BY 

HERBERT FEIS, Ph.D. 

Associate Professor in Economics 
University of Kansas 



THE MACMILLAN COMPANY 
1921 

All rights reserved 



PRINTED IN THE UNITED STATES OF AMERICA 



yVD a ° 



Copyright, 1921, 
By THE MACMILLAN COMPANY. 



Set up and printed. Published October, 1921. 



Oil 51921 



Press of 

J. J. Little k Ives Company 
New York, U. S. A. 



©CU624653 






To 

37 Mellen St. 



PREFACE 

"The Settlement of Wage Disputes" falls 
naturally into two almost equal parts: the first 
an account of the present industrial situation in 
the United States, and of the factors which govern 
American wage levels at the present time; the 
second an attempt to formulate principles which 
might serve as the basis of a policy of wage settle- 
ment for the country. The proposals made in the 
second part are based on the theoretical analysis 
of the first part. 

Certain chapters in the first part (III and IV) 
may prove difficult for the ordinary reader. They 
are intended to be merely an analysis of a particu- 
lar set of facts and tendencies — those which affect 
the present wage situation in the United States, 
or may affect it in the near future. Such an 
analysis of a particular set of facts is all that 
economic theory can successfully accomplish. 

This book was first projected in the summer of 
1914. The Dress and Waist Industry of New 
York City had set up a Board of Protocol Stand- 
ards to settle wage disputes. The late Robert C. 
Valentine was then engaged in finding a basis of 
wage settlement for the industry that would be 

vii 



viii PREFACE 

of more than passing value — and as his assistant, 
I first became convinced that there could be no 
permanent peace under the wages system, once 
different interests became organized, unless a clear 
body of fundamentals principles applicable to all 
industries are supported and enforced. 

In the course of the work I have incurred many 
obligations both in the United States and Great 
Britain. I can only acknowledge a very few here. 
To my teachers, Prof. F. W. Taussig and W. Z. 
Ripley, I owe much, both for their instruction, 
direct help and example. In Great Britain, Mr. 
John A. Hobson, Mr. Henry Clay and Mr. and 
Mrs. Sidney Webb aided me greatly to understand 
British experience. My debt to the work of Judge 
Jethro W. Brown of the South Australia Industrial 
Court is heavy as the book shows. Above all I 
have to thank my friend Dr. Walter B. Kahn for 
his share in the work. 

H. F. 

University of Kansas. 



CONTENTS 

PAGE 

Chapter I — Introductory 1 

§ 1. In any attempt to formulate principles for use in 
the settlement of wage disputes, past experience 
furnishes much guidance. What this experience 
consists of. 

§ 2. Such principles as have been used in the settle- 
ment of wage disputes have usually resulted from 
compromise; reason and economic analysis have 
usually been secondary factors. However, indus- 
trial peace cannot be secured by a recurrent use 
of expedients. 

§ 3. The attitude most favorable to industrial peace. 

Chapter II — Some Pertinent Aspects op the Present 
Industrial Situation 8 

§ 1. The chief aims of any policy of wage settlement for 
industrial peace defined — the chief tests to be 
passed. A knowledge of present industrial facts 
essential to the formulation of sound policy. 

§ 2. The present economic position of the wage earners. 

§ 3. Their relations to the other groups in industry. The 
acceptance of the practice of collective bargaining 
essential to any policy of wage settlement in the 
United States to-day. Trade unionism must prove 
itself fit for this responsibility, however. 

§ 4. The economic position of capital in the present in- 
dustrial order. Its service to production. The 
problems to which the accumulation of capital has 
given rise. 

§ 5. The economic position of the directors of industry. 
Industrial control an attribute of ownership. Two 
important suppositions used in this book, concern- 
ing: a. The forms of industrial income; b. The 
possible spread of public ownership, and its con- 
sequences for a policy of wage settlement. 



A 



^r 



x CONTENTS 

PAGE 

Chapter III — The Principles of Wages 35 

§ 1. A knowledge of the forces governing existing wage 
levels essential in any attempt to work out a pol- 
icy of wage settlement for industrial peace. 

§ 2. Wage incomes determined by great number of 
forces. The three most important and constant 
among these stated. 

§ 3. These three to be taken up in order. The volume 
of the flow of wealth in the county of the worker 
the first to be considered. Its relation to wages 
indirect, as all product is joint result. 

§ 4. The scientific management theories of wages based 
on a misconception of the relation between the 
productive contribution of labor and wages. These 
theories merely an elaboration of one method of 
wage payment. They have perceived one im- 
portant truth, however. 
J § 5. The "group-demand" theory of wages as held by 
/\ some trade unions, based on a similar miscon- 

ception. Valid, sometimes, from group point of 
view; unsound from point of view of labor in 
general. 

§ 6. The second important force determining wages is 
She relative plenty or scarcity of the different 
groups or agents of production. How this governs 
the share of the product going to wage earners. 

§ 7. Many important modifying forces to the influence 
upon wages of relative plenty or scarcity. The 
most important considered. 

§ 8. The forces determining the sharing out of the prod- 
uct of industry summarized. The idea of normal 
equilibrium in distribution a mistaken one. 

§ 9. A brief analysis of the factors which determine 
actual plenty or scarcity of the different agents 
of production at any one time. 
§ 10. The third important force introduced — the rela- 
tive plenty or scarcity of different kinds of labor. 
The existence of relatively separate groups of 
wage earners discussed. The nature of an in- 
vestigation of the principles of wages. 

Chapter IV — Principles of Wages (Continued) ... 69 
§ 1. We have next to examine the causes of formation 
of relatively separate groups of wage earners. 



CONTENTS xi 



§2. What is meant by a "relatively separate group"? 

§ 3. The causes of the existence of these groups in the 
United States to-day. Inequality of natural abil- 
ity; inequality of opportunity; artificial barriers. 
All these contradictory to assumptions behind 
theory of general rate of wages. 

§ 4. Trade unions another factor in the formation of 
relatively separate groups. Indirect effects in 
opposite direction. 

§ 5. Each of these groups has a relatively independent 
economic career. There are a series of wage levels, 
all of which are governed to a considerable extent 
by the same forces. 

§ 6. The way in which the relative plenty or scarcity 
of each kind or group of labor affects its wages. 
Other forces play a part also. 

§ 7. The nature of wage " differentials." 

Chapter V — Wages and Price Movements 87 

§ 1. The transactions of distribution arranged in terms 

of money. How does this affect the outcome of 

distribution as regards wages? 
§ 2. The characteristics of price movements. 
§ 3. The direct and indirect effects of upward price 

movements upon the distribution of the product. 
§ 4. The direct and indirect effects of falling price 

movements upon the distribution of the product. 
§ 5. The doctrine of the "vicious circle of wages and 

prices" examined. Its meaning and importance. 

Chapter VI — Wages and Price Movements (Continued) . 106 
§ 1. The problems of wage settlement arising out of 
upward price movements two in number: (a) 
Should wages be increased during such periods? 
(b) If so, on what basis should increases be ar- 
ranged? The doctrine of the maintenance of the 
standard of life analyzed. 
§ 2. An alternative method of adjustment proposed, 

based on a new index number. 
§ 3. Periods of falling prices also present two problems 
of wage settlement, similar in essentials to those 
presented by upward movement. These problems 
discussed. 



xii CONTENTS 

PAGE 

Chapter VII— The Standard Wage 121 

§ 1. The remainder of the book will consist of an attempt 
to mark out principles of wage settlement that 
could be applied with relative peace and satisfac- 
tion in the settlement of wage disputes. 

§ 2. Some preliminary notes on the subsequent exposi- 
tion. The question of the political machinery 
required to put any policy of wage settlement 
into effect, avoided on the whole. 

§ 3. The principle of wage standardization denned and 
explained. 

§ 4. The characteristics of the standard wage examined. 

§ 5. The effect of the standard wage on individual in- 
dependence and initiative. 

§ 6. The effect of the standard wage on the distribution 
of employment within the group. 

§ 7. Its effect upon industrial organization, prices, and 
managerial ability. 

§ 8. Its effect upon the output of the wage earners. 
This question cannot be satisfactorily discussed 
apart from the larger one — that of the effect of 
unionism upon production. 

§ 9. Wage standardization and the "rate of turnover" 
of labor. 

Chapter VIII — The Standard Wage (Continued) . . .147 
§ 1. What variations or limitations should be intro- 
duced into the principle of standardization in view 
of the great area and economic diversity of the 
United States? 

§ 2. Differences in natural or acquired advantage be- 
tween different enterprises as a reason for modi- 
fication and limitation of the principle. 

§ 3. Differences in the character of the work performed 
by any large group of wage earners as a reason. 

§4. Differences m the cost of living at different points 
within the area of standardization as a reason. 

§ 5. The grounds for ''nominal variations" in standard 
wage rates. The policy to be pursued in regard to 
payment for irregular employment. 

§6. The possibility of maintaining standard wage rates 
over a large and diversified area considered. 



u 



CONTENTS xiii 

PAGE 

§ 7. Up to the present, the progress of standardization 
has not proceeded in accordance with reasoned 
conclusions as to the results produced. 

§ 8. Where should level of standardization be set? The 
doctrine of "standardization upward." 

§ 9. The importance of the principle of standardiza- 
tion in wage settlement. 

Chapter IX — The Living Wage 177 

§ 1. The reasons for seeking separate principles for the 
settlement of the wages of the lowest paid groups. 

§ 2. Wage statistics of these groups a matter of familiar 
knowledge. 

§ 3. The definition of the living wage idea. An inescap- 
able element of indefiniteness contained in it. 

§ 4. The living wage principle put in the form of applied 
policy. 

§ 5. Should the living wage principle be applied to male 
labor? The arguments for and against. 

§ 6. The theoretical case for the living wage principle. 
The verdict of past experience favorable to its 
extension. 

§ 7. The dangers which must be guarded against in ap- 
plying it. 

§ 8. It should be administered through machinery which 
makes possible careful study of facts of each indus- 
try. This machinery discussed. 

§ 9. The question of the relation to be established be- 
tween living wage for men and women difficult. 
Alternatives considered. 

§ 10. A plan for the adjustment of the living wage to 

price changes. The basis of adjustment. 
§ 11. The policy of adjustment — already discussed. 
§ 12. The hope of the living wage policy. 

Chapter X — The Regulation of Wage Levels .... 209 
§ 1. Why there must be in industry an ordered scheme 
of wage relationship between each and every group 
of wage earners. The limits of collective bargain- 
ing as a factor in industrial peace. 
§ 2. In the beginning, the scheme must probably be 



xiv CONTENTS 

PAGE 

based on an acceptance of existing wage "differ- 
entials." The reasons for this are of a practical 
kind. 

§3. Any policy which planned to develop a scheme of 
wage relationships merely by maintaining existing 
differentials would be bound to fall to pieces in 
the end. The difficulties that would arise. 

§ 4. Two principles proposed as the basis of the desired 
scheme of wage relationship. Their meaning as 
applied doctrines. 

§ 5. These principles open to criticism both on prac- 
tical and theoretical grounds. The chief criticisms 
examined and taken into account. 

§ 6. Some notes on the best method of administering 
these principles. The necessity of avoiding po- 
litical interference, if possible. 

Chapter XI — The Regulation of Wage Levels (Con- 
tinued) — Wages and Prices 231 

§ 1. The scheme of wage relationship must recommend 
itself as just to the wage earners and the com- 
munity in general. The ultimate distributive 
question to be met is the division of the product 
between profit and wages. 

§ 2. Provision for the adjustment of wages to price 
movements would aid, however, towards reaching 
distributive goal. A policy of adjustment sug- 
gested. 

§ 3. The difficulty of maintaining scheme of wage rela- 
tionship of wages adjusted to price movements. 
The best method of adjustment a compromise. 

Chapter XII — The Regulation of Wage Levels (Con- 

tinued) Wages and Profits 239 

§ 1. The profits return in industry, under any policy of 

wage settlement, will be closely scrutinized. 
§ 2. The possibility of measuring a "fair" profits return 
for all industry discussed. A method suggested. 
§ 3. Would the principles of wage settlement worked out 
so far, produce a fair profits return? An open 
question. 

§4, The scope and form of any measure designed to as- 
sure the desired distributive outcome can be dis- 
cerned. 



CONTENTS 



xv 



§ 5. The various steps in the formulation of such a 
measure reviewed. A measure tentatively sug- 
gested. 

§ 6. The difficulties of calculating wage changes called 
for under the suggested measure. 

§ 7. The chief practical weaknesses of the suggested 
measure examined. 

§ 8. It would be open to theoretical criticism also. The 
alternatives even less satisfactory. 

Chapter XIII — A Concept of Industrial Peace . . . 

§ 1. The hope for industrial peace in the United States. 

§ 2. A policy of wage settlement composed out of the 
principles already set forth. 

§ 3. What results might be expected from the adoption 
of these principles as a policy? 

§ 4. The matter of economic security for the wage earn- 
ers likely to be important for industrial peace. 
Hardly considered in this book. The question has 
been presented to the Kansas Court of Indus- 
trial Relations. 

§ 5. Certain new ideas concerning industrial relationship 
have come to stay. They indicate the probable 
current of future change. 



264 



THE 

SETTLEMENT OF WAGE 

DISPUTES 






THE SETTLEMENT OF 
WAGE DISPUTES 

CHAPTER I— INTRODUCTORY 

Section 1. In any attempt to formulate principles for use 
in the settlement of wage disputes, past experience fur- 
nishes much guidance. What this experience consists of. 
— Section 2. Such principles as have been used in the 
settlement of wage disputes have usually resulted from 
compromise; reason and economic analysis have usually 
been secondary factors. However, industrial peace can- 
not be secured by a recurrent use of expedients. — Section 
3. The attitude most favorable to industrial peace. 

1. — The industrial life of the United States is 
marked by an almost continuous series of open 
struggles between the employers and wage earners 
of its highly organized industries. No one defends 
these struggles for their own sake. There is a gen- 
eral inclination, however, to regard them as a nec- 
essary accompaniment of industrial activity and 
change. It must not be supposed that all labor 
troubles are merely wage controversies — that is to 
say, that they are all incidental to the settlement 
of the wage incomes of the laborers. Many of 
them arise in whole or part from a shifting and 
conflict of ideas about various other aspects of the 

1 



2 THE SETTLEMENT OF WAGE DISPUTES 

industrial order. It is possible, however, to con- 
centrate attention upon those conflicts which 
center around the settlement of wages. 

There is a quick and somewhat tumultuous 
stream of investigation directed to the invention 
and formulation of principles which could be used 
as a basis of settlement of wage controversies. In 
various countries such principles have been form- 
ally set forth and used. The awards of the War 
Labor Board are an example of their imperfect ap- 
plication. In the Industrial Court of the Com- 
monwealth of Australia we have an example of the 
consistent use of one set of wage principles. The 
material that has arisen out of this process of dis- 
cussion and experimentation is of the utmost value 
to any one endeavoring to work out a wage policy 
for industrial peace in the United States. It forms 
a body of doctrines. It gives evidence both as to 
the chief subjects of wage controversy, and indi- 
cates the suitability or the •shortcomings of many 
of the principles or doctrines that might be pro- 
posed. Thus in any investigation of principles of 
wage settlement — with a view to industrial peace 
— we are not without the guidance of experience. 

This experience consists, firstly, of the principles 
worked out and applied in the decisions and orders 
of the courts or boards which have served as 
agents of wage settlement in the United States, 
England, Canada and the Australian dominions. 
Of almost equal value is the material growing out 
of those great industrial conflicts of recent 



INTRODUCTORY 3 

years, in which claims have been put forward and 
agreement has been sought on the basis of some 
definite theory of wages. Such, for example, is the 
material prepared and presented in the course of 
the railway wage arbitrations in the United States 
and England. Such also is the evidence and ma- 
terial presented in the course of the inquiry re- 
cently held in Great Britain upon the wages of 
transport workers. 

2. — It should be understood that the principles 
which have been used in wage settlements in the 
past were not ideal solutions. That is to say they 
were not arrived at solely by the use of reason, 
directed to the discovery of what is just and what 
is for the general good. The situation has been 
rather that described by Mr. Squires, when he 
writes: "Too often in the past arbitration has 
followed the line of least resistance. With much 
unction, the lion's share has been awarded to the 
lion. Decisions proposing another settlement were 
speedily forgotten because not enforced. Those 
submitting to arbitration frequently did so with 
the mental reservation that the decision to be ac- 
ceptable must at least approximate the conditions 
they felt they would be able to establish by a 
show of strength. From this position to one of 
complacent acceptance of arbitrary decisions, ap- 
plied not to an isolated group but seeking to com- 
prehend all labor or a given class, is a long step 
for both employers and employees." And again: 



4 THE SETTLEMENT OF WAGE DISPUTES 

"In arbitrary wage adjustments the absence of 
well defined and acceptable standards to be used 
in wage determination as well as the difficulty in 
enforcing awards that did not conform closely to 
the law of supply and demand has forced arbitra- 
tion to resort to the expediency of splitting the 
difference. Cost of living, proportionate expense 
of labor, and net profits, when taken into account 
have been more often evoked in defense of claims 
made than as a means of determining what claims 
were just under the circumstances." 1 

So, also, with any attempt to devise principles 
which might serve as the basis of a policy of wage 
settlement in the United States. They would 
represent the effort to develop standards by which 
conflicting claims could be resolved. It is not de- 
sired to signify agreement by this admission with 
those who believe that all principles of wage set- 
tlement must be purely passive, with those who 
argue that wage settlement must perforce be 
nothing more than a recurrent use of expedients 
produced on the spur of the occasion out of the 
magical hat of the arbitrator. All that is meant 
is that no policy of wage settlement will succeed 
if its results diverge too greatly from the interests 
which it, in turn, would guide and restrain. Any 
policy of wage settlement must take into consid- 
eration the moral and social circumstances perti- 

la New York Harbor Wage Adjustment, " B. M. Squires, 
Monthly Review of the U. S. Department of Labor, Sept., 
1918, page 19. 



INTRODUCTORY 5 

nent to the dispute as well as the economic. It 
must express active social and ethical claims as 
well as recognize economic facts. It must be sup- 
ported by the sense that it is at least moderately 
just. 

Most attempts, furthermore, to settle wage dis- 
putes by the use of defined principles have re- 
sulted in an incoherence of policy due to the neces- 
sity of bowing to the facts of force. This inter- 
ference of force and the consequent disturbance 
of policy is likewise to be expected in all future 
attempts. For, in all human affairs private inter- 
est will, on favorable occasions, revolt against laws 
or rules which restrain it. 

Again, in the United States all past attempts to 
settle wage disputes by reference to principles 
have been isolated and sporadic. They have, 
therefore, been virtually foredoomed to failure. 
For as will be made clearer as we progress, any 
successful attempt to base wage settlements upon 
principles will demand the consistent and courage- 
ous application of these principles for a not in- 
considerable period, and to all important indus- 
tries alike. Otherwise compromise and a search 
for any way out of the immediate crisis is the 
only possible principle of settlement. Any 
well-conceived policy of wage settlement must 
have regard for a far wider set of forces and 
facts than are presented by any single controversy. 
The objects of any policy could only be attained 



6 THE SETTLEMENT OF WAGE DISPUTES 

through a long series of decisions ranging through- 
out the field of industry, and related to each other. 
This, it is trusted, will become plain as the diffi- 
culties of formulating policy are discussed. 

3. — Prof. Marshall in his great book has an ar- 
resting passage on the importance of the tendency 
to organization which characterizes the whole field 
of industry. He writes: "This is not a fitting 
place for a study of the causes and effects of trade 
combinations and of alliances and counter al- 
liances among the employers and employed, as 
well as among traders and manufacturers. They 
present a succession of picturesque incidents and 
romantic transformations which arrest public at- 
tention and seem to indicate a coming change of 
our social arrangements now in one direction and 
now in another; and their importance is certainly 
great and grows rapidly. But it is apt to be ex- 
aggerated ; for indeed many of them are little more 
than eddies such as have always flitted over the 
surface of progress. And though they are on a 
larger and more imposing scale in this modern age 
than before; yet now, as ever, the main body of 
the movement depends on the deep, silent, strong 
stream of the tendencies of normal distribution 
and exchange which 'are not seen' but which 
control the course of those episodes which 'are 
seen.' For even in conciliation and arbitration 
the central difficulty is to discover what is the 



INTRODUCTORY 7 

normal level from which the decisions of the court 
must not depart far under penalty of destroying 
their own authority." * 

Writing in England in 1920, it seems to me as 
if the events of change in England were more than 
the surface movements he speaks of, and that 
slowly but definitely industrial arrangements are 
undergoing modification so as to give scope to new 
energies and ideas which will modify the "normal" 
distribution and exchange as he conceived it. 
The future in the United States is even less clearly 
marked. There too new purposes and claims are 
arising and will seek adjustment with established 
arrangements. 

The attitude of all those who really desire in- 
dustrial peace must be that of readiness to judge 
such forces of change as may become active, by 
the balance of good or harm they seem to promise. 
For that is the attitude which alone can make pos- 
sible a fusion of the conservatism of experience 
and of established interest, and the radicalism of 
hope and desire — by which fusion society can ex- 
perience peaceful development. 

1 A. Marshall, "Principles of Economics," 7th Edition, page 
628. 



CHAPTER II— SOME PERTINENT ASPECTS 

OF THE PRESENT INDUSTRIAL 

SITUATION. 

Section 1. The chief aims of any policy of wage settlement 
for industrial peace denned — the chief tests to be passed. 
A knowledge of present industrial facts essential to the 
formulation of sound policy. — Section 2. The present 
economic position of the wage earners. — Section 3. Their 
relations to the other groups in industry. The acceptance 
of the practice of collective bargaining essential to any 
policy of wage settlement in the United States to-day. 
Trade unionism must prove itself fit for this responsi- 
bility, however. — Section 4. The economic position of 
capital in the present industrial order. Its service to 
production. The problems to which the accumulation of 
capital has given rise. — Section 5. The economic posi- 
tion of the directors of industry. Industrial control an 
attribute of ownership. Two important suppositions used 
in this book, concerning: a. The forms of industrial in- 
come ; b. The possible spread of public ownership, and its 
consequences for a policy of wage settlement. 

1. — The problem of wage settlement may be re- 
garded as the task of elucidation or invention of 
methods and principles in accordance with which 
the product of industry might be shared among 
the wage earners and the other participants in the 
product with relative peace and satisfaction. It 
is necessary and permissible, as has been re- 
marked, to separate this problem from other close- 
ly related problems. However, any policy of 



ASPECTS OF PRESENT SITUATION 9 

wage settlement that might be adopted would be 
also an important influence in other industrial 
issues outside of those it settles directly. It 
would affect in numberless ways the relations be- 
tween the groups concerned in production. It 
follows that no policy of wage settlement will 
work successfully unless it accomplishes two ends. 
First, it must represent convincingly the effort to 
divide the product of industry so as to satisfy the 
most widely held conceptions of justice in the in- 
dustrial system. Second, it must contribute, 
wherever it is a factor, to such an adjustment of 
industrial relations as will command the voluntary 
support of all groups whose cooperation is neces- 
sary for the maintenance of industrial peace. 

For the accomplishment of these two objects, 
any policy must be based upon a knowledge of the 
present economic position of the various groups 
engaged in industry, and of the present state of 
industrial relations between them. It is obvious- 
ly impossible to review these matters adequately 
in this book. The most that can be attempted is 
a brief survey of those aspects of these questions 
with which the problem of wage settlement must 
definitely concern itself. Such a survey will oc- 
cupy this chapter. If it serves no other purpose, 
it will serve the important one of making clear the 
source of certain general presuppositions with 
which the problem of formulating a policy of wage 
settlement for industrial peace is approached. 



10 THE SETTLEMENT OF WAGE DISPUTES 

2. — It is convenient to deal with the general 
field under survey by considering in the order 
stated, the present economic position, firstly, of 
the wage earners; secondly, of those who own in- 
vested capital; and thirdly, of those who direct in- 
dustrial activity. Questions of industrial relation- 
ship between these groups can then be presented 
at the point at which they arise most pertinently. 
Such a loose order as this is dictated by the desire 
to avoid all questions except those which inevit- 
ably arise when studying the problem of wage 
settlement. 

To begin with the wage earners. The task of 
giving exact scope to the term "wage earners" 
may be shirked. The term may be taken to in- 
clude, at least, all those grades of workers whose 
incomes would be governed directly by any scheme 
of wage settlement. When using the term in the 
course of theoretical discussion, as in the ordinary 
analysis of distribution, it may be taken to include 
also other grades of workers, whose incomes prob- 
ably would not be so governed, as for example, 
assistant or department managers of large busi- 
nesses. 

The recent past has witnessed important 
changes both in the economic position of the wage 
earners, and in the relations between them and the 
other groups engaged in industry. A close con- 
nection may be traced between the two lines of 
change. Up to the beginning of the present cen- 
tury, at any rate, it may be asserted that the wage 



ASPECTS OF PRESENT SITUATION 11 

earners of the country were not separated from 
the rest of the industrial community, either 
socially or economically; although at all times 
throughout the last century, there was to be found 
a section of recent immigrant labor which had not 
yet found its way into the main channels of eco- 
nomic society. The farms, the shops and private 
businesses of the small and semi-rural towns; 
these were the common origins and discipline of 
our industrial leaders and of the more skilled 
groups of wage earners. There was no great dif- 
ference either of educational or of industrial op- 
portunity between the mass of men. The few 
great financial centers of the East may have been 
the home of an established and separate economic 
class, but this class was not one of the most impor- 
tant industrial forces. The standard of life as well 
as the economic prospects of all wage earners who 
had been thoroughly absorbed into the community 
encouraged a feeling of equality and independence. 
The tradition of our period of industrial expansion 
was that most men should seek to operate their 
own farm or business (and be their own master). 
This tradition could flourish as long as a great 
variety of industrial opportunity existed for the 
ordinary individual. The first stages in the de- 
velopment of our natural resources, the course of 
mechanical invention and improvement, the rapid 
growth of our population — all these changes stim- 
ulated independent enterprise, and offered great 
hopes of success in enterprise to men possessed of 



12 THE SETTLEMENT OF WAGE DISPUTES 

common sense, energy, and character. No family- 
felt itself placed in a fixed position in the industrial 
scale except by reason of its own inferior powers of 
utilizing opportunity. The wage earners were 
those workers who worked for some one else, but. 
they did not form a separate class different in ex- 
perience and outlook from their employers. The 
possession of wealth, under such circumstances in- 
dicated individual capacity, temperament, and 
ambition. 

That phase of American industry is certainly 
not entirely past, although it has not persisted to 
the extent that some of the industrial leaders 
whose rise was contemporaneous with the earlier 
stages of industrial expansion, are wont to argue. 
At the present time able and determined in- 
dividuals, who in youth are manual workers fre- 
quently succeed in discovering openings to the 
higher industrial positions. The need for business 
ability is still too great to be supplied by any one 
level of society ; all are drawn upon. The thought 
that each man can attain to the possession of a 
business of his own, or to a position of importance 
in some big business, is even now a common con- 
viction and inspiration among the more skilled 
groups of wage earners. Yet the economic posi- 
tion of the wage earners in industry has undergone 
genuine change. 

The chief characteristics of the present situation 
are familiar knowledge. First of all, the percent- 
age of employers to wage earners in industry has 



ASPECTS OF PRESENT SITUATION 13 

decreased. 1 Again most new undertakings in the 
important branches of productive industry re- 
quire a large amount of capital, a specialized and 
rather rare capacity for organization and a con- 
siderable knowledge of a wide sphere of industry. 
Indeed, the undertaking of new business enter- 
prises has itself become to no small extent the 
function of organizations rather than of indi- 
viduals. Further the personal cooperation between 
employer and the best men among his wage earn- 
ers which was in the past the ordinary method of 
business education is not often practised now. In- 
dustry is not a good education for the skilled and 
able wage earners. Industrial management has 
usually taken the view that there is no need or 
profit in educating the wage earners beyond the 
requirements of their specialized task. The gap 
between ordinary wage work and managerial work 

1 A. Marshall, Appendix N, "Industry and Trade," en- 
titled "The Recent Increase in the Size of the Representative 
Business Establishment in the United States/' has drawn up 
some tables on this very subject. 

He writes, "The table given below shows that the 208,000 
establishments engaged in manufacture in 1900 had increased 
to 268,000; but meanwhile the total value of their output 
had increased from $4,8311 M to $8,529 M: that is, their 
average output had increased from 232,000 to 318,000: if we 
go back to 1850, when workshops, etc., were reckoned in, we 
find the average output of an establishment to have been 
less than 4,000 dollars." And again "Industrial establish- 
ments having a less output than 100,000 dollars accounted 
for 20.7 per cent of the whole in 1904; but only 17.8 in 1909. 
In the same years the share of establishments with output 
between 100,000 dollars and 1,000,000 dollars fell from 46.0 
to 43.8, while that of grant businesses with not less than 1,000,- 
000 dollars output rose from 38 per cent to 43." 



14 THE SETTLEMENT OF WAGE DISPUTES 

and ownership is in most industries great — the 
path upward hard to discover. 

The jobs which carry the easiest opportunities 
for advancement in many important industries are 
now the subordinate positions in the various ex- 
ecutive, administrative or sales branches. These 
jobs tend to be given to young men from that 
section of society which has affiliations, direct or 
indirect, with the management of industry. The 
growth in importance of these branches has led to 
the development of a specialized form of education 
for industrial leadership which the wage earner 
does not receive. Indeed, with the ever increasing 
complexity of the problems of business enterprise, 
prolonged education, itself, has become of more 
importance in determining individual chances of 
success. All these developments have greatly les- 
sened the chances of the ordinary wage earner for 
any position of ownership or control. They have 
tended to separate the wage earners from the 
groups controlling industry ; they have taken away 
in a large measure the inspiration which work re- 
ceives from hopes of steady advancement. When 
that hope is gone only the hope for high wages is 
left, and that is not a sufficiently potent common 
aim to insure the cooperation required for so 
complex an activity as modern industry. 

Simultaneously with the revolution in industrial 
structure and interacting with it in many ways, 
there has occurred a great change in the com- 
position and character of the wage-earning body. 



ASPECTS OF PRESENT SITUATION 15 

The change that occurred between 1870 and 1910 
in the sources of the immigration which has fur- 
nished the United States with the bulk of its 
supply of unskilled and semi-skilled labor, is a 
commonplace of American industrial history. The 
effects of this change have been largely governed 
by other industrial events, chief among which may 
be put the increased concentration of industry in 
and around a relatively small number of cities or 
regions. For as Mr. Chapin in his study of the 
sources of urban increase has stated: "Immi-. 
gration has been the chief source of urban increase 
in the United States during the past quarter of a 
century." * 

There has assembled in each of our great cities 
a mass of workers, many of whom are of recent 
alien origin, quickly habituated to the routine of 
existence in crowded city streets and busy facto- 
ries. The interchange of opinion and of sympathy 
between these lowest grades of industrial workers 
and the rest of the community is very imperfect. 
Their industrial position and outlook tends to be 
that of a separate class. As a rule, they are un- 
organized. It is of these grades of labor that Prof. 
Marshall has written "Some of these indeed rise; 
for instance, particular departments of some steel 
works are so fully manned by Slavs, that they are 
beginning efficiently to take the place of Irish and 
others who have hitherto acted as foremen : while 

1 Publications oj the American Statistical Association, Sept., 
1914. 



16 THE SETTLEMENT OF WAGE DISPUTES 

large numbers of them are to be found in rela- 
tively light, but monotonous work in large cities. 
They may lack the resolute will which put many 
British, German and Scandinavian immigrants on 
terms of equality with native Americans. But 
they are quick withal, versatile; and as a rule, 
easily molded; they take readily to the use of 
machinery; and they have no tradition that could 
prevent them from doing their best in using semi- 
automatic machines, which are simple of handling, 
while doing complex work. Thus America has ob- 
tained a plentiful supply of people who are able 
and willing to do the routine work of a factory for 
relatively low wages, and whose aptitudes supple- 
ment those of the stronger races that constitute 
the great bulk of the white population. " * They 
have sought chiefly such improvement in their 
position as might come from increased wages. 
They have remained in the regions of the will and 
of thought subject to those who controlled in- 
dustry; for they themselves have been in a strange 
environment, and so have not been able to display, 
to any considerable extent, the qualities requisite 
to industrial leadership. 

The difference of viewpoint and even of eco- 
nomic interest between the groups of skilled 
craftsmen in industry and the unskilled grades is 

1 A. Marshall, "Industry and Trade," p. 149. See for analy- 
sis of occupations of immigrants, "Report of U. S. Ind. Com- 
mission," Vol. IX. 



ASPECTS OF PRESENT SITUATION 17 

being gradually reduced. Industrial develop- 
ments have tended to emphasize the measure of 
common interest between all grades of wage earn- 
ers. The steady trend to standardization in pro- 
duction and to simplification of the machine proc- 
esses has lessened somewhat the difference be- 
tween the character of the work of the upper and 
lower grades of labor. Modern industrial de- 
velopments have led to an increased emphasis 
upon "general ability" and a lessened emphasis 
upon "special ability." To quote Marshall again, 
"Manual skill that is so specialized that it is quite 
incapable of being transferred from one occupa- 
tion to another is becoming steadily a less and less 
important factor in production. Putting aside 
for the present the faculties of artistic perception 
and artistic creation, we may say that what makes 
one occupation higher than another, what mates 
the workers of one town or country more efficient 
than those of another, is chiefly a superiority in 
general sagacity and energy which are not special- 
ized to any one occupation." * As labor organiza- 
tion tends to become recognized as a regular part 
of the framework of industry, as the duties put 
upon trade union leadership are broadened in order 
that industry may give the wage earners collective 
representation, it is to be expected that stronger 

1 A. Marshall, "Principles of Economics" (7th edition), 
page 206, 



18 THE SETTLEMENT OF WAGE DISPUTES 

bonds will arise between the skilled and unskilled 
grades of wage earners than those which unite 
them at present. 1 

The position of the female industrial workers 
remains to be noted since the employment of 
women in industry seems likely to increase. 
Women are employed, on the whole, on the lighter 
and more routine stages of the process of pro- 
duction. They have shown capacity, endurance 
and steadiness upon monotonous and nerve strain- 
ing work both upon machine and hand tasks. It 
seems likely that they will continue to displace 
men in many of the simpler mechanical jobs. 
Many individual women wage earners have risen 
to tasks of responsibility and direction. This 
number will be greatly added to by improvement 
in the education of women for industry and by 
their continued self-assertion. Nevertheless, it is 
likely that the great bulk of women wage earners 
will continue to be employed as at present upon 
relatively simple, light and unskilled work. 

Such, in briefest outline, is the economic posi- 
tion of the wage earners in American industry to- 

1 In an analysis of the trend toward union amalgamation 
published by Glocker in 1915, he concludes that "Instances in 
which the self interest of the skilled workers demand their 
amalgamation with the unskilled are still rare, however. If 
common laborers are admitted in the near future to unions 
of other workers in the same industry, they will be admitted 
not from self interest, but from more altruistic motives, from 
a growing spirit of class consciousness attended, perhaps, by 
a correspondingly growing realization of class responsibility 
— "Amalgamation of Related Trades in Unions." American 
Economic Review, Sept., 1915, page 575. 



ASPECTS OF PRESENT SITUATION 19 

day. There is a diversity of outlook and of ani- 
mating spirit among the various groups or classes. 
There is no very settled opinion among them as to 
the place of the wage earner in the industrial sys- 
tem. There is besides a diversity of racial and sex 
faculty and adaptability. 

3. — Change and diversity also mark the relation- 
ships between the wage earners and the other in- 
dustrial groups. Up to the very recent past, the 
connection of the wage earners with the enterprise 
in which they served was limited practically to the 
fulfillment of the individual wage contracts which 
were made. The obligation of the wage earners to 
the enterprise which employed them has been con- 
sidered at an end with the performance of the 
work they were employed to do. Similarly, the 
obligation of the enterprise to the wage earners has 
been considered fulfilled by the payment of wages 
earned. The wage earners have been called upon 
to give their whole-hearted efforts to their work 
by reason of the belief that such effort was to their 
own interest, and by reason of their own hopes and 
desires for advancement. The American wage 
earners have usually tackled their jobs with 
energy, good will, and sincerity. 

It is impossible to attempt to sketch here the 
development of the practice of collective bargain- 
ing, and the various concepts of industrial rela- 
tionship to which the rise of trade unionism has 
given impulse. We are now in the midst of a 



20 THE SETTLEMENT OF WAGE DISPUTES 

struggle brought about by the efforts of the wage 
earners to add to their traditional rights of free- 
dom of contract and of enterprise certain other 
rights. These may be collectively described as the 
right to organize and to use their organized 
strength collectively in all ways which may be re- 
conciled with the public interest. Some of the 
greatest industrial conflicts of recent years have 
been consequences of the efforts of the wage earn- 
ers to establish these additional rights both in fact 
and in law (as for example the strike in the steel 
and iron industry in 1919). Much headway has 
been made in the establishment of the rule of 
collective bargaining in industry. The scope of 
the matters usually settled by that method varies 
greatly between individual establishments and 
industries. 

Organized labor has frequently received official 
recognition by the fact of its representation on 
bodies concerned with the investigation or control 
of the conditions of labor, or with general ques- 
tions arising out of, or closely connected with, in- 
dustrial activity — especially during the war. The 
President's Second Industrial Conference, which 
was appointed to make recommendations concern- 
ing the most urgent problems of industrial re- 
lationship that had been accentuated by the war, 
emphasized the need for the "deliberate organiza- 
tion" of the relationship between employer and 
employees in large industries, but contributed lit- 
tle to the matters in dispute. Their view was ex- 



ASPECTS OF PRESENT SITUATION 21 

pressed as follows: "To-day we have a complex in- 
terweaving of vital interests. But we have as yet 
failed to adjust our human relations to the facts of 
an economic interdependence. The process to- 
ward adjustment, though slow, nevertheless goes 
on. Right relations between employer and em- 
ployee, in large industries, can be promoted only 
by deliberate organization of that relationship. 
Not only must the theory that labor is a com- 
modity be abandoned, but the concept of leader- 
ship must be substituted for that of mastership/' 
The attitude of the community has been to take 
no step in advance of what resulted from the trial 
of argument and force by the directly interested 
parties. But it is probable that in the future 
public opinion will be more positive and will grant 
to labor organizations fuller recognition and 
greater participation in the control of industrial 
activity than heretofore. 

It will be impossible to develop any policy of 
wage settlement while certain of these questions 
of industrial relationship remain unsettled — par- 
ticularly the question of the acceptance of the 
method of collective bargaining. Any proposals 
of wage policy must put that matter, at least, on 
firm ground. It is probable that in order to ad- 
minister any policy of wage settlement some 
means of representation for the wage earners will 
be indispensable. And it is likely that satisfac- 
tory representation can only be obtained by the 
organization of the wage earners. Furthermore, 



22 THE SETTLEMENT OF WAGE DISPUTES 

this organization will have to be on a wider scale 
than shop organization, although shop organiza- 
tion may also be useful. Thus it may be said that 
it will be found necessary in any attempt to se- 
cure industrial peace in the United States by the 
enforcement of a policy of wage settlement, not 
only to recognize labor unions where they already 
exist, but also to give encouragement to some form 
of organization where none exists. 1 

If in the trying times immediately ahead the 
trade unions give proof that they are more than 
servants of craft interests; if they stand up as 
democratic institutions capable of exercising 
power in industry and not abusing it; if their lead- 
ers show they can be humble, when made power- 
ful, then that opposition to the growth of trade 
union power which is based on a genuine concern 
for the public welfare will be disarmed. If the 
trade unions show none of these qualities, the 
common sense of the community will resist them 
in the name of traditional equality and de- 
mocracy. Popular movements such as trade 
unionism must make mistakes constantly, but be- 
cause of the spirit behind them, they have great 
powers of recovery. The trade union movement, 

1 Under the Kansas Industrial Court Law passed in 1920, 
no provision in that direction is made. The Court is in- 
structed to deal either with organizations or with individuals. 
It is likely that the Court, in its efforts to pet disputes settled 
before they reach it, will find it necessary to encourage or- 
ganization. A related question which is bound to arise sooner 
or later is in regard to the stand that the court will take in 
disputes arising out of attempts to organize an industry. 



ASPECTS OF PRESENT SITUATION 23 

as a whole in the United States, has not yet shown 
a thorough comprehension of the economic system 
of which it is a part; it has, therefore, often erred 
in its efforts to end an evil or injustice. Particu- 
lar unions and leaders have often pursued mean, 
short-sighted and self-seeking policies — which 
have reflected upon the whole movement. Much 
like other economic groups, when their own in- 
terest has not coincided with the general interest, 
they have frequently put their own interest first. 
It is the test of all great popular movements, 
however, that they show they possess the ability 
to pursue a just and generous policy even while 
they are hard pressed, provoked by injustice, and 
maligned. That is the trial which trade unionism 
faces in the United States to-day ; it is the example 
trade unionism must set before it can expect will- 
ing acceptance as a fundamental industrial in- 
stitution. Unless the union movement proves 
itself intelligent, disciplined, and aware of ethical 
considerations, a continuance of industrial conflict 
will be inevitable; for any practicable policy of 
wage settlement for industrial peace will require 
union participation. 

4. — Let us pass now to the economic position of 
"capital" (the owners of capital) in the industrial 
order which uses it (of which they are a part). 
In a society where labor works upon the gifts of 
nature almost unaided by instruments invented by 
man and fashioned by previous human labor, the 



24 THE SETTLEMENT OF WAGE DISPUTES 

society must content itself with small numbers or 
little product or both. Modern industry has been 
shaped, perhaps predominantly, by the effort to 
support large numbers at a high standard of eco- 
nomic existence. Production has become greatly 
subdivided among specialized groups. In in- 
dustry to-day, the wage earners of various kinds 
perform their tasks with the assistance of such 
equipment, machinery, and general organization 
as will serve to make their labor result in a large 
product. The means which make possible this 
effective employment of labor in industry are what 
we mean by the term "capital." 1 The section of 
the community which owns and directs the invest- 
ment of the bulk of these means has received the 
name of capitalists. 

Almost all the capital accumulated within the 

1 It should be observed that the above definition of capital 
as the "means which make possible the effective employ- 
ment of labor in industry" is a functional definition. To 
make the definition good, so to speak, it would be necessary 
to enter into an analysis of a complex series of interactions 
including a study of the action of the banking systems, and 
the methods of industrial finance. To attempt to state the 
various forms of capital would involve the same process — 
for capital is to some extent a secretion of the whole in- 
dustrial organization. For present purposes it is better to 
disregard the finer shades of interaction involved in the 
process of creation of capital and the provision of capital to 
industry important as they are. 

It will suffice to take note only of the simpler and most 
fundamental suspect of the process. Thus it is not misleading, 
for present purposes, to say that the capital which is at the 
command of industry in the U. S. at the present time is the 
result of accumulation in private hands of some part of the 
product of past labor. 



ASPECTS OF PRESENT SITUATION 25 

United States is privately owned. Since the be- 
ginning of our industrial history the opportunities 
for accumulation have been left to individuals 
and the capital which industry has used has been 
provided by private owners. We have depended 
upon the personal motives of individuals to per- 
suade them to refrain from the immediate con- 
sumption of some part of the product of industry 
which has come into their possession, and to lead 
them to put their savings at the further command 
of industry. 

The circumstances which have governed the 
course and direction of this accumulation, and the 
question of the amount of economic cost that it in- 
volved have been the subjects of much capable ex- 
position and of very violent differences. Much 
accumulation has resulted from the fact that in- 
dustrial or rent incomes have been at certain times 
distinct surpluses over the possible consumption 
of the individuals in receipt of them. Much has 
been prompted and maintained by the efforts of 
men to move ahead to success and power — that is 
by ambition and rivalry; much by the idea that 
pecuniary success is itself an achievement, a mark 
of ability and leadership. The ordinary hopes of 
the multitude of men, such as the desire for a 
secure existence for themselves and their family, 
and the wish to figure among their friends as an 
equal, have been the steadiest motives of all. Sav- 
ing is not one of the most deeply implanted habits. 
It is a habit that is closely bound up with the 



26 THE SETTLEMENT OF WAGE DISPUTES 

qualities of personal ambition, calculation and the 
desire for responsibility. That is the reason why 
rich men are so seldom very likable. It is the 
reason also why those who are the most needy are 
at times least disposed to save when they have a 
chance. And if in the immediate future, the re- 
sponsibility for accumulation is to be more widely 
diffused than at present, there will have to be a 
general cultivation of these qualities — qualities, 
indeed, most requisite for a complex, mechanical 
civilization like our own. 

The accumulation of capital, as has been said, 
enables industry to utilize such methods of pro- 
duction as result in a high volume of product for 
a given expenditure of effort. Much of the hope- 
fulness and energy which has characterized our 
industrial life arose out of the belief that the con- 
tinuous course of capital accumulation, since it 
made possible the utilization of new inventions 
and improved methods of production, was prepar- 
ing the way for a future that would be marked by 
even a wider distribution of comfort than men saw 
around them. Thus it has been urged that by 
devotion to industry and by consuming less than 
was produced, the time would come when the 
world would be so well equipped that none of its 
workers would have to be in want of the economic 
essentials of a satisfactory life. In Mr. Keynes 
words, "Society was working not for the small 
pleasures of to-day, but for the future security and 
improvement of the race, — in fact for 'progress.' 



ASPECTS OF PRESENT SITUATION 27 

If only the cake were not cut, but was allowed to 
grow in the geometrical proportion predicted by 
Malthus of population, but not less true of com- 
pound interest, perhaps a day might come when 
there would be at last the enjoyment of our labors. 
In that day, overwork, overcrowding and under- 
feeding would come to an end and men secure of 
the comforts and necessities of the body could 
proceed to the nobler exercise of their faculties." 1 

Under the guiding force of this conviction, and 
in the United States, with the extra stimulus of 
the belief that individual effort was throwing open 
vast new resources to the world, the course of ac- 
cumulation has been viewed with approval and in 
the spirit of emulation. 

We, however, have recently been assailed by 
growing doubts in regard to the idea of economic 
progress based upon capital accumulation. We 
have witnessed the growth of severe tensions be- 
tween those who receive the greatest share of the 
income from accumulated wealth and the other 
groups engaged in production. It is pertinent to 
inquire into the reasons for this change of feeling ; 
for, within the sphere of its operation, any policy 
of wage settlement must aim to lessen or elimin- 
ate this cause of discontent. 

First of all it must be observed that the bulk of 
the accumulation has been accomplished by a rela- 

1 J. M. Keynes, "Economic Consequences of the Peace," 
pages 18-20. See also A. Marshall, "Industry and Trade," 
Appendix P headed "Possibilities of the Future." 



28 THE SETTLEMENT OF WAGE DISPUTES 

tively small number of individuals. If this con- 
centration of wealth were peculiar to the United 
States it might be attributed to the fact that 
this country has undergone exceptionally rapid 
expansion, during which the opportunities for ac- 
cumulation were both unusual and irregularly 
distributed. But the explanation seems to lie 
deeper, for the same condition is to be found in all 
advanced industrial nations. The opinion may be 
ventured that it is characteristic of such industrial 
arrangements as have prevailed in the United 
States, that the tendency towards diffusion of the 
results of advances in production (obscured, be- 
sides, by the growth of population) should lag 
seriously behind the tendency towards concen- 
tration. 1 

The condition of inequality of wealth, hereto- 
fore a condition of the process of capital accumu- 
lation, is one of the chief causes of the embitter- 
ment of industrial relations. Firstly, it is one of 
the factors which tend to the creation of separate 
group interests. A high degree of inequality of 
accumulated wealth leads to a concentration of 
the control of the larger industrial enterprises 

1 In the very interesting study made by Prof. Bowley on 
"The Change in the Distribution of the National Income, 
1880-1913" (Great Britain), page 27, a similar conclusion is 
stated. 

See also the article of Prof. A. A. Young entitled "Do the 
Statistics of the Concentration of Wealth in the United States 
mean what they are commonly assumed to mean?" In the 
March, 1917, issue of the Journal of the American Statistical 
.Association. 



ASPECTS OF PRESENT SITUATION 29 

within the hands of a small section of the com- 
munity. The interest in high returns from ac- 
cumulated wealth appears to be a group interest. 
And, indeed, if the lag of diffusion behind concen- 
tration passes a certain point it is in reality a 
group interest — in the sense of being opposed to 
the general interest. Secondly, great inequality of 
wealth leads to the growth of institutions incom- 
patible with the purposes of a democracy. These 
are a cause of economic antagonism, which has its 
reflection in industrial relations. Thirdly, it has 
evil psychological effects. In a country bred upon 
the general ideas of democracy, not even political 
equality and a wide distribution of economic ne- 
cessities and comforts will suffice to produce gen- 
eral contentment, if a top stratum of the com- 
munity is possessed of the social advantages of 
vast wealth. Few are satisfied with their lot as 
long as they see others, often through no qualities 
of their own, more satisfactorily endowed with 
worldly goods. Lastly, although great inequality 
of wealth makes possible a high level of produc- 
tion, it also makes great waste possible. 

Thus, grave dissatisfaction surrounds that very 
process of capital accumulation which has been 
regarded as the high road of economic progress. 
Grave doubts have arisen as to the ultimate at- 
tainment of the vision at its end. The task is pre- 
sented of directing and safeguarding the course of 
capital accumulation. It is evident that no policy 
of wage settlement can, of itself, do a great deal 



30 THE SETTLEMENT OF WAGE DISPUTES 

in this regard. Something it can do. That, it is 
ventured, should be along the following lines: it 
must aim to effect a distribution of the product of 
industry in which the return to the owners of ac- 
cumulated capital does not exceed a point de- 
termined by weighing the following considera- 
tions: 

First, the service of capital in production, the 
sacrifice involved in much accumulation, and the 
need of assuring capital accumulation, as discussed 
above. 

Secondly, the evil effects of inequality of wealth 
as discussed above. 

Thirdly, the fact that the health, energy, and 
intelligence of those that carry out the work of 
production are no less important factors in ef- 
fective production than capital itself. And that 
the possession and use of these qualities by in- 
dividuals is to a considerable measure dependent 
upon their economic position here and now. 

These various considerations, it need hardly be 
said, cannot be weighed mechanically, but only 
by the use of the informed judgment. 

The policy of wage settlement must, in addition, 
give indirect encouragement to the growth of such 
industrial beliefs and institutions as will enable 
the wage earners to participate in the control over 
the conditions of production. Only then will the 
effect of industrial methods on the welfare of the 
wage earner receive constant attention, and the 
desire of the wage earners for self-improvement be 



ASPECTS OF PRESENT SITUATION 31 

given encouragement. In these directions, then, 
the policy of wage settlement can and should safe- 
guard and direct the course of capital accumula- 
tion. 

5. — The preceding discussion bears directly upon 
the next question to be considered, namely, the 
present economic position of those who perform 
the work of direction in industry. Only one or 
two aspects of this subject require attention in 
this investigation. 

It may be remarked, to begin with, that those 
who own the capital invested in industrial enter- 
prises thereby possess the most general powers of 
control and direction over them. These powers 
they may exercise personally or through their 
agents — but in either case, the fact of ownership 
is the decisive influence in the settlement of these 
questions in which the wage earners are most in- 
terested. The fact that some of the capital in- 
vested in particular enterprises may not carry with 
it any rights of control or direction — as for ex- 
ample, the capital invested in railway bonds, or 
the temporary borrowings from the banks con- 
tracted by most industrial concerns — does not af- 
fect this truth. It is entirely conceivable that 
enterprises might be carried on wholly with the 
use of such capital as gave no title to control over 
the conduct of the enterprise ; but at present, the 
opposite, generally speaking, is the fact. And as 
is to be expected the work of direction is domi- 
nated normally by the necessity of earning profit 



32 THE SETTLEMENT OF WAGE DISPUTES 

for the owners of the enterprise — though many 
other sentiments and motives may and do mingle 
with the motive of profit-making. These facts 
form the basis of two suppositions, by the aid of 
which the argument of this book is carried out. 

The first one is to this effect: that if rent in- 
comes (in the sense of Ricardian rent) are left out 
of consideration, since they will not be directly af- 
fected by the policy of wage settlement, the pro- 
duct of industry is distributed in two major forms. 
These are to wit: that which is received by work- 
men in direct return for their labor, which is called 
wages; and that which goes to those who own, and 
therefore govern, directly or indirectly, the opera- 
tion of industrial enterprises, which is called 
profits. It is hardly necessary to remark that the 
same individual may be in receipt of both forms 
of income. The second form of income "profits" 
is a mixed form of income which may be analyzed 
in different instances, into very different quanti- 
ties of the elements which make it up. This 
mixed form of income, which goes to the owners 
of industry by virtue of their dual connection with 
industrial enterprise — the connection of owner- 
ship and direction — contains in some forms of en- 
terprise a large element of what has been called 
"the wages of management" ; in other forms this 
element may be almost entirely absent. So too 
with the element of "interest" and with the other 
elements which may enter into it. Throughout 
this inquiry the term "profits" will be used to in- 
dicate this mixed form of income. 



ASPECTS OF PRESENT SITUATION 33 

The second supposition supplies an answer to a 
question that must be faced in any attempt to 
formulate a policy of wage settlement for in- 
dustrial peace in the United States. That ques- 
tion is whether it shall be taken for granted that 
the desire for private profit will continue to govern 
the performance of the tasks of industrial direc- 
tion. The wage policy that is developed in the 
course of this book is based on the assumption 
that the large majority, if not all, of the indus- 
tries which would be included in it, were it 
adopted, will remain privately owned and op- 
erated. At the same time, it is by no means out- 
side of current possibilities that certain of our 
greatest industries may change over into some 
form of public ownership; and that this owner- 
ship would be accompanied either by direct pub- 
lic operation, or very considerable public regula- 
tion of their operation. Therefore, we are led to 
ask whether a wage policy conceived on the as- 
sumption of private ownership and control would 
be applicable to industries under public owner- 
ship. 

The answer will be different according to cir- 
cumstances. If the regime of public ownership 
should become general, as is contemplated in the 
orthodox socialist theory, it is likely that, then, 
an attempt would be made to rest wage policy on 
principles fundamentally different than any that 
would be practicable under a regime of private 
enterprise. On the other hand, if public owner- 
ship should be extended only to a very few though 



34 THE SETTLEMENT OF WAGE DISPUTES 

important industries such as the railroads and coal 
mines, it is almost certain that the principles 
underlying the settlement of wages in the publicly 
owned industries would have to be the same as 
those applied in the privately owned. The gen- 
eral policy of operation might differ, however, in 
other respects. Thus, a policy of wage settlement 
formulated on the assumption of private owner- 
ship would not become unsuitable in the event 
that some industries became publicly owned. 

The relations between those who carry out the 
actual work of direction in industry and the wage 
earners have been touched upon already from the 
point of view of the wage earners. It has been 
stated that the policy of wage settlement should 
give encouragement to such arrangements as will 
enable the wage earners to participate in the con- 
trol over the conditions of production. Alongside 
of this general aim may now be put one other, 
which cannot in any way be embodied in the terms 
of wage policy, but which should be given a lead- 
ing place in the calculations of those who execute 
the wage policy and therefore possess educative 
influence. That purpose is to try, by the edu- 
cative power of their position to give vitality to 
the idea that those who direct industry have a 
duty to weigh the public interest in their opera- 
tions, and to emphasize the necessity of seeking 
a basis of cooperation with the wage earners 
which will give them all possible chance to find 
their work healthy and interesting. 



CHAPTER III— THE PRINCIPLES OF 

WAGES 

Section 1. A knowledge of the forces governing existing 
wage levels essential in any attempt to work out a policy 
of wage settlement for industrial peace. — Section 2. 
Wage incomes determined by great number of forces. 
The three most important and constant among these 
stated. — Section 3. These three to be taken up in order. 
The volume of the flow of wealth in the country of the 
worker the first to be considered. Its relation to wages 
indirect, as all product is joint result. — Section 4. The 
scientific management theories of wages based on a mis- 
conception of the relation between the productive con- 
tribution of labor and wages. These theories merely an 
elaboration of one method of wage payment. They have 
perceived one important truth, however. — Section 5. 
The "group-demand" theory of wages as held by some 
trade unions, based on a similar misconception. Valid, 
sometimes, from group point of view; unsound from 
point of view of labor in general. — Section 6. The second 
important force determining wages is the relative plenty 
or scarcity of the different groups or agents of produc- 
tion. How this governs the share of the product going to 
wage earners. — Section 7. Many important modifying 
forces to the influence upon wages of relative plenty or 
scarcity. The most important considered. — Section 8. The 
forces determining the sharing out of the product of in- 
dustry summarized. The idea of normal equilibrium in 
distribution a mistaken one. — Section 9. A brief analysis of 
the factors which determine actual plenty or scarcity of 
the different agents of production at any one time. — 
Section 10. The third important force introduced — the 
relative plenty or scarcity of different kinds of labor. 
The existence of relatively separate groups of wage earn- 
ers discussed. The nature of an investigation of the 
principles of wages. 

35 



36 THE SETTLEMENT OF WAGE DISPUTES 

1. — In the preceding chapter, an attempt was 
made to mark some of the broader tests which will 
confront any policy of wage settlement for in- 
dustrial peace and to foresee the ends that must 
be accomplished. An effort was made to de- 
fine some of the conditions of industrial peace. 
To what extent these conditions are attainable, 
and how they are to be sought, remains to be 
studied. The starting point of further study is a 
knowledge of the forces which govern the distribu- 
tion of the product of industry at the present time 
in the United States — that is, a knowledge of the 
principles of distribution. Our intention, how- 
ever, is to undertake that study only in so far as it 
is necessary to explain how wage incomes are de- 
termined. Such a partial study of the principles 
of distribution with the special purpose of making 
clear the factors that govern wage incomes will oc- 
cupy the next two chapters. They will constitute 
a statement of wage principles. 

2. — The distribution of the product of industry 
between the wage earners and the other groups 
who share in it is a continuous process in which 
each group asserts its own interests and purposes. 
Wages are settled through a series of separate bar- 
gains between the wage earners and the owners or 
directors of industrial enterprises. The outcome 
of these bargains, as regards wages, is determined 
by the interaction of a great number of circum- 
stances or forces, some of which are relatively 



THE PRINCIPLES OF WAGES 37 

more constant and more important than others. 
We will begin our study of wage principles by con- 
sidering those forces which are relatively the most 
important and the most constant. 

These have been cogently summarized as fol- 
lows: " . . . the volume of the flow of wealth in 
the country of the worker; the relative plenty or 
scarcity of different agents of production ; the rela- 
tive plenty or scarcity of different kinds of labor." 1 
They may be taken up in the order stated, at the 
same time noting the way their action is modified 
and complicated by other factors. 

One preliminary comment may be admissible. 
It is to the effect that there has been in the past a 
tendency to view the problem of distribution (and 
so, of wages) as if it consisted of making clear by 
analysis the balance or equilibrium of a few given 
and unchanging tendencies — which were deduced 
from human and physical nature. These forces 
furthermore, were frequently held to be universal; 
the conclusions based on them have often been 
likened to physical laws. Such a view obscures 
the fact that any analysis of distribution is but a 
description of the working of a particular indus- 
trial society at a particular time. To mistake 
what is a description of a particular society for a 
study of the action of physical laws has the effect 
of leading men to believe that the present must 
forever reappear in the future. 

1 H. Clay, "Economics for the General Reader" (English 
edition), page 333. 



38 THE SETTLEMENT OF WAGE DISPUTES 

3. — The first factor, "the volume of the flow 
of wealth in the country of the worker," was never 
more under discussion than to-day, when from all 
sides demands are heard for the material means 
necessary to the realization of desires. As the mat- 
ter is ordinarily put, the greater the product of in- 
dustry is, the more there is for distribution among 
all. The truth of this statement seems obvious. 
Yet in interpreting it into policy more than usual 
care must be taken lest it be forgotten that other 
things may make a larger contribution to satis- 
factory living than an increase in these possessions 
which make up the flow of wealth. Instances are 
by no means lacking of increases of production ob- 
tained at the sacrifice of something more im- 
portant to human life than the additional product 
secured. There is a "mean" here also between 
labor and leisure. 

All this, however, reads like a lawyer's brief 
about a simple matter. The greater the volume 
of goods and services resulting from the labor of 
society, the more there is to share out; and the 
greater in amount will the share of the wage earn- 
ers be, even if their relative share is not increased. 1 

The volume of production depends upon the 
quantity and quality of each and every agent that 
assists in production, and upon the organization 
of the separate powers, and above all upon the 
progress of invention and of the industrial arts. 
It depends directly upon: first, the natural re- 

1 See A. C. Pigou, "Wealth and Welfare," page 20. 



THE PRINCIPLES OF WAGES 39 

sources of the country — which are ordinarily sum- 
marized in economic discussion under the term 
"land" — "by land is meant the material and the 
forces which nature gives freely for man's aid, in 
land and water, in air and light and heat;" 1 
second, the "accumulated provision for the pro- 
duction of material goods" — capital — which was 
discussed in the preceding chapter; thirdly, on the 
labor of men and women— on the degree of spirit, 
skill, energy and intelligence which characterizes 
that labor; fourthly, on the quality of leadership 
which manifests itself in industrial affairs, and the 
success with which the elements of production are 
brought into well directed cooperation; fifthly, 
on the progress of invention and the industrial 
arts. 

The relationship between the volume of pro- 
duction and wages is indirect. Though it is true 
that the larger the product, the higher wages 
will be, all other forces remaining the same, the 
connection between them is by no means simple 
or direct. That is because the wage earners share 
in a product to the making of which other 
agents contribute. In our present industrial sys- 
tem work is done under direction, and by the aid 
of tools and machinery; it is highly subdivided. 
It is impossible to determine the contribution to 
total production of any group of workmen, or of 
all workmen. The product is a joint result in 

1 A. Marshall, "Principles of Economics" (7th edition), page 
138. 



40 THE SETTLEMENT OF WAGE DISPUTES 

which the part played by any one group, instru- 
ment, or factor of production cannot be traced. 
Who, for example, is able to say how much pro- 
ductive activities have been aided by the inven- 
tion of the telephone and the growth of the tele- 
phone system? The problem of the distribution 
of the product of modern industry is so difficult 
and so much to the fore because so many differ- 
ent people contribute in some way or other to 
the product and have a claim upon it. 

Wage incomes may be affected by changes in 
the volume of the product, no matter what the 
cause or nature of the change. If suddenly some 
new chemical fuel were discovered in the labora- 
tory, or some business efficiency expert were to dis- 
cover some formula which made motors go round, 
the labor now spent in coal mining could be turned 
to other tasks. The volume of economic goods 
produced would be increased. The product to be 
distributed would be greater, and wage incomes 
would rise. A similar result would ensue if the 
magic formula of the expert endowed all working- 
men with greater skill and energy. Any addition 
to or subtraction from the capacity of any agent 
of production tends to affect not only its own in- 
come, but that of all claimants. The reward of 
any one agent of production, for example, labor, 
depends not only on its own part in production, 
but upon the contribution of all other factors. A 
craftsman in the United States may be no abler 
than his fellow workman in France, but may 
receive twice his wage. 



THE PRINCIPLES OF WAGES 41 

This line of reasoning must be qualified in one 
respect. There is some competition for employ- 
ment between the several agents of production. 
Their relative efficiency will affect the demand for 
them, and so will also affect the share of the 
product each receives most directly. That is a 
phase of the subject that will be considered at 
greater length at another point. 1 

4. — Given an industrial society at work like the 
United States, producing each year a varied flow 
of commodities and services, the question arises as 
to what determines the share of that flow that goes 
to the wage earners. We have already seen that 
the larger the product is, the higher wages are 
likely to be. But what determines the sharing 
out? That is the next matter to be considered. 
First, however, let us examine briefly two theories 
of wages which are more or less current in certain 
quarters, and which are built upon partial or com- 
plete misunderstanding of the connection between 
wages and the work actually performed by the 
wage earners. 

The first theory, or rather group of theories, is 
that to which some of the leaders of the scientific 
management movement have given their sanction. 
The central idea of this group of theories is that 
in the output of the wage earners, considered 
either as individual output or as the output of a 
small group engaged on a common task, is to be 

1 See pages 56-8, this chapter. 



42 THE SETTLEMENT OF WAGE DISPUTES 

found the final and just measure of wages. It is 
frequently assumed in the course of the reasoning 
used in support of these theories, that wages can 
and should measure a separate contribution 
which the individual wage earner makes to pro- 
duction. The positive, although hazy, belief 
which ordinarily underlies the scientific manage- 
ment theories of wages can be perceived in the fol- 
lowing quotation from a speech of one of the lead- 
ing advocates of the movement. "There are two 
ways in which wages can be advanced. One is the 
natural method, the proper method, the beneficial 
method, the one that tends to the uplift of the 
world. That is to make the advance depend ab- 
solutely on the effort of the worker. When the 
worker delivers more, it is perfectly proper that 
the returns should go up. In other words as unit 
costs go down wages can very properly rise, and 
they should rise. Under these circumstances, the 
worker is tremendously interested in seeing that 
the unit costs go down. There is a regular mathe- 
matical law here. Only to a certain extent can the 
unit cost go down and only to a certain extent can 
the wages go up. ... On the other hand, when 
you raise wages without any connection whatever 
with the unit cost you inevitably find that the 
worker takes his bonus in the form of more 
leisure. . . ." * 

1 Address of Mr. Harrington Emerson at the National Con- 
ference of the "Society of Industrial Engineers and Western 
Efficiency Society" on labor problems. 



THE PRINCIPLES OF WAGES 43 

At the risk of repetition, it may be remarked 
that the output of an individual or a group of in- 
dividuals is of necessity but a contribution to a 
joint product, and is dependent upon many other 
things besides the effort of the individual. And, 
therefore, even if the view that each individual 
should get what he produces were found to be ac- 
ceptable as a basis for distribution, any attempt 
to base wages solely upon considerations of in- 
dividual or group output must rest on a false as- 
sumption. Any laws or principles for the deter- 
mination of wages must reckon with a far wider 
and more numerous set of considerations than 
those taken into account by the scientific manage- 
ment theories of wages. These can only be under- 
stood by a study of the economic facts and ar- 
rangements which govern distribution, and by 
weighing many questions of social and economic 
expediency. To talk about basing wages solely 
on the effort of the worker is to ignore the obvious 
fact that much of the most laborious work is the 
worst paid. 

The exponents of scientific management have 
not discovered a law of wages; they have simply 
elaborated a method of wage payment. Mr. G. 
D. H. Cole has expressed that well. "Clearly, al- 
though scientific management methods may re- 
duce the possible margin or error in determining 
piece-work prices, they cannot altogether remove 
it, and even if the time that ought to be taken for 
a job is clearly established a further complication 



44 THE SETTLEMENT OF WAGE DISPUTES 

confronts us. All the time-study in the world 
cannot show how much ought to be paid for a job. 
It can only show at most the length of time a job 
ought to take. That is to say, it cannot determine 
what is to be the standard of living or of remuner- 
ation of the workers. . . . This, indeed, is only 
another way of saying that Scientific Management 
has only devised a further method of payment 
under the wage system." * 

The exponents of these theories fell into the 
error of believing they have unveiled a law of 
wages because they grasped one important truth. 
That truth is that where the productivity of labor 
is high, where labor is efficient, there is a greater 
chance, all other circumstances being the same, of 
securing high wages than when the reverse is the 
case. Or as the matter has been put in one of the 
reports of the U. S. Industrial Commission (1912- 
16) "A close causal relationship exists between 
productive efficiency and possible wages. Greater 
efficiency and output makes possible higher wages 
in general and better conditions of employment 
and labor." 2 (Italics mine). That the scientific 
management doctrine of wages consists of noth- 
ing more than a method of wage payment is 
clearly established by its failure to substantiate in 

1 G. D. H. Cole, "The Payment of Wages," page 67. 

2 Final Report of the Committee on Industrial Relations 
(1912-16). Report signed by Commissioners Manly, Walsh, 
Lennon, O'Connell, and Garrettson — the section on scientific 
management stated to be based on an investigation conducted 
by Frey, Valentine, and Hoxie, page 128, Vol. I. 



THE PRINCIPLES OF WAGES 45 

practice its claims of furnishing a scientific and 
equitable method of fixing wage rates. On that 
point the same Industrial Commission reports that 
"In analyzing the wage fixing problem in connec- 
tion with scientific management two matters are 
considered; one — the "base-rate" sometimes called 
the day wage, which constitutes for any group of 
wage earners the minimum earnings or indicates 
the general wage level for that group, and two — 
added "efficiency payments" which are supposed 
to represent special additional rewards for special 
adjustments. The investigators sought in vain 
for any scientific methods devised or employed by 
scientific management for the determination of 
the base-rate, either as a matter of justice between 
the conflicting claims of capital and labor, or be- 
tween the relative claims of individual and occu- 
pational groups." x As a method of wage pay- 
ment, of course, the method of scientific manage- 
ment must be judged by its good and bad effects 
like other methods of wage payment. That, how r - 
ever, is not a task which need detain us. 

5. — The other group of wage theories that is 
based upon a similar misconception of the relation 
between the productive contribution of labor and 
wages cannot be so briefly dealt with. This is the 
group of theories which has been named "the 
fixed group demand theory" and it has figured 

1 Ibid. 9 Vol. I, pages 131-2. 



46 THE SETTLEMENT OF WAGE DISPUTES 

prominently in most discussions concerning re- 
striction of output. This group of theories also 
rests upon the assumption that there is a fixed 
relation between the productive contribution of 
a group of workmen and the wages received by 
these workmen. 

The fixed group demand theory has been sum- 
marized as follows: "The demand for the labor 
of the group is determined by the demand for the 
commodity output of the group. The community- 
wealth and distribution remaining the same — has 
a fairly fixed money demand for the commodities 
of a group. It will devote about a given propor- 
tion of its purchasing power to these commodi- 
ties, that is, if the prices of the group commodity 
are higher, it will buy less units and vice versa, 
but expend about the same purchasing power. 
Therefore, the demand for the labor of the group; 
profits remaining the same, is practically fixed, 
and increasing the group commodity output means 
simply conferring a benefit on the members of 
other groups as consumers without gain to the 
group itself. Therefore, to increase the efficiency 
and output of the group will not increase the 
group labor demand, and group wages. Decreas- 
ing the efficiency and output of the group will not 
decrease the group labor demand and the group 
wage." 1 Or in simpler terms, that the com- 
munity will want a relatively fixed amount of the 

1 R. F. Hoxic, "Trade Unionism in the United States," page 
162. 



THE PRINCIPLES OF WAGES 47 

product which the group helps to produce. And 
thus if the group reduces the time needed to make 
that product, it will not benefit and may even 
be harmed, because the services of some of its 
members will be no longer needed. And, on the 
other hand, that the members of the group will 
not be harmed by keeping the products of its 
labor scarce and high. 

This line of reasoning, as held by some trade 
unionists, is valid on occasion, from the point of 
view of particular groups of workmen — especially 
during short periods. It is a fact that in many 
cases workmen employed in particular industries 
or occupations, may not be benefited and may 
even be injured by a display of extra effort or by 
the adoption of a new and more efficient method 
of production. The benefit of that extra effort or 
new method may not go directly and imme- 
diately to the group which makes the effort or 
utilizes the new method — it may not go to that 
group at all except in so far as they may be con- 
sumers of their own product. 

The question of an adequate supply of new 
houses is at present a vexed one and is likely to re- 
main so for some years. Therefore it makes a 
good illustration of the difficulties involved in the 
question under discussion. Suppose it were pos- 
sible for all the labor employed in the construction 
of houses to increase their effort and accomplish, 
let us say, a third again as much as at present. 
Would that increase of effort repay these work- 



48 THE SETTLEMENT OF WAGE DISPUTES 

men — would they receive higher wages? It is not 
a matter that can be argued with certainty. The 
expense of construction would fall rapidly, unless 
combination among the firms supplying building 
materials or among building contractors prevented 
such a fall. In the event that the cost of con- 
struction fell, there can be little doubt that more 
construction would be undertaken. Would the in- 
creased demand for construction lead immediately 
to an increase in demand for building labor suffi- 
ciently great to give employment to workmen who 
would not be needed on the old construction be- 
cause of the increase in individual output? Would 
it be so great as to mean a more than proportion- 
ate increase in demand for building labor and a 
consequent rise in wages? Would its effect be felt 
immediately or only after the passage of some 
months, during which a number of the building 
laborers would be without employment? What 
will be the effect on employment two years hence? 

Looked at in this light, the skepticism of trade 
union groups in regard to appeals for an increase 
of effort is easy to understand. It arises from the 
simple desire of the group to protect their position 
in industry by the only means they possess. It 
is an attitude strengthened in many cases by the 
memory of weeks without work and efforts ig- 
nored. It is a bitterness, like to others, which 
men inherit from experience. 

Yet it can be stated with emphasis, that from 



THE PRINCIPLES OF WAGES 49 

the point of view of the wage earners as a whole, 
and of all of society, that any consistent ad- 
herence to this group demand theory of wages 
would be mistaken and unsound. The use of im- 
proved methods of production by any group, the 
more efficient performance of their work, may not 
result in a quick fall in the price of the product 
they are engaged upon, though sooner or later 
it usually does. The fall in price may or may 
not lead to rapid increase in the demand for the 
product of the group sufficiently great to give 
employment to all its members, or increased em- 
ployment; although that result has usually ap- 
peared in the long run also. 

The fundamental fact is that the demand for 
the product of labor is ordinarily subject to in- 
definite increase. If labor is economized in one 
direction, the power dispensed with will be utilized 
in another direction. The community income of 
economic goods is a flow. Under our present 
system of division of labor each individual uses his 
share of the product (which he measures in terms 
of money) to buy the particular commodities, or 
to make the particular investments he desires. 
If he gets some commodities cheaper than 
formerly, he will buy more, or buy commodities he 
had not been able to buy hitherto or increase his 
investments. The demand of the community for 
the product of labor in general will ultimately keep 
pace with the supply of the product. Economies 



50 THE SETTLEMENT OF WAGE DISPUTES 

in production throughout the whole industrial 
field mean that there will be more commodities to 
be shared out. 

Thus, in spite of the fact that there may be, 
and often are, serious breaches of interest between 
particular groups of wage earners and society as a 
whole on the matter of increased production, there 
can be but one- sound policy for labor as a whole. 
That is to strive to increase production up to a 
point where further effort would entail a sacrifice 
of welfare more important than that which the 
extra product might represent. 

Such general theoretical propositions as the 
above, however, will never be sufficient to per- 
suade particular groups of wage earners to take a 
different view of the interests involved. It is easy 
to understand Carlyle's contempt for the smug 
complacency with which such propositions have 
often been put forward, when he wrote, "New Poor 
Law: Laissez faire, laissez passer! The master 
of horses, when the summer labor is done, has to 
feed his horses through the winter. If he said to 
his horses: ' Quadrupeds, I have no longer work for 
you ; but work exists abundantly over the world : 
you are ignorant (or must I read you Political 
Economy pictures) that the steam engine always 
in the long-run creates additional work? Rail- 
ways are forming in one quarter of this earth, 
canals in another, much cartage is wanted ; some- 
where in Europe, Asia, Africa and America, doubt 
it not, ye will find cartage, and good go with youF 



THE PRINCIPLES OF WAGES 51 

They with protrusive upper lip snort dubiously; 
signifying that Europe, Asia, Africa and America 
be somewhat out of their beat: that what cartage 
may be wanted there is not too well known to 
them. They can find no cartage. They gallop 
distracted along highways, all fenced in to the 
right and to the left. Finally under pains of 
hunger, they take to leaping fences; eating foreign 
property, and — we know the rest." 

The reasons are plain. First, because the fixed 
group demand theory is, after all, only one varia- 
tion of the art of monopoly — though a variation in 
regard to which special conclusions may be drawn. 
Therefore, as long as monopoly is widely practised 
particular groups of wage earners will be likely to 
take advantage of whatever opportunities for 
monopoly may present themselves; even if it can 
be proved that the policy pursued injures the wage 
earners as a whole more than any other industrial 
group. Short-sighted selfishness will always 
arise in an atmosphere of distrust. If the wage 
earners, for example, believe that the product of 
their increased effort will serve but to add to the 
profits of rings or combinations controlling prices, 
they will not make that effort. They must be 
able to see that conscientious work really does con- 
tribute to the general good. And second, because 
at times, the general interest in effective produc- 
tion can only be served at the direct and serious 
expense of particular groups of wage earners. 
Such a situation arises, for example, when a skilled 



52 THE SETTLEMENT OF WAGE DISPUTES 

craft is faced with a revision of its processes that 
eliminates the need for skill, and results in the low- 
ering of the wages of the group. This is a com- 
mon event. 

Up to the present, such conflicts between par- 
ticular interests and the general interest in effec- 
tive production have been solved by a trial of eco- 
nomic strength, and by time. The viewpoint of 
the wage earners is clearly put in a statement by 
the National Organizer of The Transport Workers 
Federation (Great Britain) before the Court of 
Inquiry held upon the subject of the wages of the 
transport workers. He maintained "that the in- 
dustry ought to carry to a greater extent than it 
had done hitherto the responsibility for the un- 
employment that was peculiar to it. He had al- 
ways been quite frank with the employers. If 
they wanted a ship speedily dispatched he would 
not do it, if that meant that his men would be 
thrown out of work." * That, however, is a 
method which results ordinarily either in a sacri- 
fice of welfare or production, or of both. The 
worst results incident to these conflicts could often 
be avoided by making them the subject of joint 
discussion by all those whose interests are directly 
involved. Discussion might lead to working com- 
promise which would protect the wage earners 
against too great or too sudden loss. Even under 
the best arrangements, however, such conflicts of 
interest will be far from easy to resolve satisfac- 

1 London Times, Feb. 7, 1920. 



THE PRINCIPLES OF WAGES 53 

torily; they will remain in the words of Mr. Cole 
"a question, not of machinery, but of tact and 
temper." x 

6. — We may now turn to the main question in 
hand. What forces do govern the sharing out of 
the product of industry in the United States to- 
day? What determines wage incomes? So far 
we have only examined the general proposition 
that the larger the product, the higher wages are 
likely to be, other things remaining unchanged. 

The relative plenty or scarcity of the different 
groups or agents of production is a constant and 
important force in the distribution of the product 
of industry. From the perception of its signifi- 
cance, spring many of the loose statements of the 
action of "supply and demand," which are ven- 
tured as complete explanations of the wage 
situation. It is not possible to give a simple ex- 
planation of the part which relative plenty or 
scarcity does play in the determination of wages. 
For other forces! which affect distribution act 
simultaneously with it, and all intermingle their 
results. 

1 G. D. H. Cole, "Payment of Wages," page 30. Discussion 
of the speeding up question. The best analysis of the prob- 
lem created by the introduction of new and simplifying ma- 
chine processes in skilled trades is to be found in a volume 
called "Labor, Finance, and the War," Report of the Com- 
mittee of Investigation (1917), The Econ. Section, British 
Assn. Advancement of Science. In the same volume there is 
a careful analysis of the whole question of limitation of 
output. See also the chapter called "Unemployment" in Lord 
Askwith's "Industrial Problems and Disputes." 



54 THE SETTLEMENT OF WAGE DISPUTES 

The influence of relative plenty or scarcity 
(to use an elliptic phrase) upon the outcome of 
distribution is easily understood if it is kept in 
mind that the distributive process is one of re- 
peated negotiation and bargain. In this process 
each group or agent strives to get a high return for 
its services in production. There is a steady, 
though imperfect competition between the various 
units of each and every group or agent for employ- 
ment; there is likewise a steady, though imperfect, 
competition for the use of the various units of 
each and every group or agent. These conditions 
require no elaboration. 

It is in this process of competition for employ- 
ment, and competition to employ, that the return 
to labor — wages — is decided, simultaneously with 
the return to each and every group or agent. The 
return to labor will be high if the employment of 
the ordinary worker, as part of a productive or- 
ganization, adds considerably to the total of 
market values produced. For if the ordinary 
wage earner, by his work, makes possible a con- 
siderable addition to the market values produced, 
competition among employers for men will lead to 
the payment of high wages, and vice versa. 

Now this last result will be largely determined 
by the relative plenty or scarcity of the various 
agents of production. If the productive organiza- 
tion has at its command a plentiful supply of 
capital; if in the community there are many men 
possessed of a high order of business ability; if 



THE PRINCIPLES OF WAGES 55 

then, labor for the commoner tasks of production 
is relatively scarce, the work of the ordinary wage 
earner will be a means of adding considerably to 
the total of market values produced. Or, as it is 
sometimes put, each use of labor will be an im- 
portant use. Labor will be in great demand, and 
wages will be high. If the opposite conditions 
exist, the outcome will be reversed. In other 
words, there is a tendency for work to be highly 
valued when the number of men available for 
doing it is small and when the work is performed 
with the aid of highly perfected machinery, in a 
community in which able business men are plenti- 
ful. Each laborer will find his services easily sold 
for good wages; for his labor will be an important 
aid to production. 

A word of warning should be added to this sum- 
mary conclusion. 

It does not follow that because the wage in- 
comes of the individual laborers are high, the 
total relative share of the product which takes the 
form of wages will be high. The wages received 
by individual wage earners are no indication of the 
share of the product received by all wage earners. 
That depends not only on the return to each wage 
earner, but also on the total number of wage 
earners, and upon the number and return to each 
of the other agents of production. In China, for 
example, where most work is done by simple hand 
labor, wage incomes are low. But because the 
number of wage earners is great, and the amount 



56 THE SETTLEMENT OF WAGE DISPUTES 

of capital used is very small, the total share of the 
product that takes the form of wages is high. The 
opposite is true in the United States and England. 
There individual wage incomes are relatively high. 
But because of the great amount of capital em- 
ployed, and the great call for business direction, it 
is doubtful whether much more than half the total 
product is received by wage earners. 1 

7. — Moreover, any statement as to the influence 
of the relative scarcity or plenty of the various 
groups or agents of production, as unqualified as 
that just made must be incorrect. It gives no 
clew to the importance of interacting factors. 
Here, as elsewhere in economics, many separate 
causes meet to produce a result. The disentangle- 
ment of their effects is frequently so difficult as to 
make more than an approach to the truth possible. 
The part each cause plays often remains some- 
what obscure. Yet without reckoning with these 
interactions not even an approach to the truth is 
possible. So it is necessary to proceed now to a 
brief study of the other influences which play a 
part in distribution; and which lead to results 
somewhat different from those just described. 

First, account must be taken of the fact that the 
various groups or agents of production are not en- 
tirely complementary, as has been assumed up to 
this point. Their outstanding relation — that of 
cooperation in the production of a joint product 

1 See A. L. Bowley, "Distribution of Income in the United 
Kingdom Before the War." 



THE PRINCIPLES OF WAGES 57 

— has already been studied. But there is also a 
measure of genuine competition between them for 
the field of employment. An unusually clear and 
detailed example of the nature of this competition 
is to be found in the report of the commission on 
"The Decline of the Agricultural Population in 
Great Britain." To quote "Many expedients, 
other than actually stopping the plow, were 
adopted to reduce the labor bill. But while man- 
ual labor has no doubt been economized to some 
extent by curtailing some of the operations which 
require it, the main cause of reduction is undoubt- 
edly the extended use of labor saving machinery. 
This is referred to by the large majority of corre- 
spondents in all parts of the country. With the 
exception of the self-binding harvester, which was 
introduced into this country in the eighties, few 
machines for the performance of a specific manual 
operation have perhaps been invented since 1891 
(unless milking machines, shearing machines, and 
perhaps potato diggers come within that cate- 
gory), but whereas twenty years ago labor saving 
machinery was fully employed by comparatively 
few, it has now become almost universal on all 
holdings of sufficient size to make its use prac- 
ticable. The substitution of mechanical for horse 
or hand power, for mixed machinery, e.g., threshing 
machines, chaff cutters, pumps, etc., has taken 
place largely, although it has made comparatively 
little progress for tractive purposes. It may in- 
deed, be questioned if steam is so largely employed 



58 THE SETTLEMENT OF WAGE DISPUTES 

in the cultivation of land as it was twenty years 
ago. But the displacement of manual labor aris- 
ing from the greatly extended use of drills, horse 
hoes, mowers, binders, manure distributors and 
the like must have been in the aggregate very 
great and probably to this more than to any other 
single cause the reduced demand for farm laborers 
may be attributed." 1 As Professor Marshall has 
remarked of such cases of competition for employ- 
ment between labor and capital as this, the com- 
petition is in reality between one kind of labor 
aided by much waiting, and another kind of labor 
aided by little waiting. Nevertheless, the fact of 
competition between the various groups or agents 
is a fact of no mean importance in distribution. 
As has already been suggested, the efficiency of the 
wage earners plays a part in determining their 
field of employment in this competition for em- 
ployment. 

Secondly, the simpler statements of the action 
of the factor of relative plenty and scarcity, such as 
are represented by the marginal diagrammatic ex- 
positions familiar in economics, obscure the fact 
that distribution is a process in which human wills 
are actively engaged. The constant assertion of 
will is a real force in the working out of distribu- 
tion. Each group with a claim to a share of the 
product, by organization, agitation, and other 
tricks of the market place strives to forward its in- 

1 Report of the Commission on the "Decline of Agricul- 
tural Population" (Great Britain), 1906, page 14, CD 3273. 



THE PRINCIPLES OF WAGES 59 

terest. It explores, by pressure upon the price 
mechanism and otherwise, the full extent of the 
dependence of the industrial system upon it or its 
product, as when monopolists control prices, or a 
trade union strikes to enforce a wage demand. 
Each group or agent tends to favor or resist 
changes in laws, industrial methods, and institu- 
tions according as it expects to be benefited or 
otherwise by the change. This may be seen in the 
discussions surrounding the introduction of the 
eight hour day, or concerning the limitation of im- 
migration. However, it is a careless exagger- 
ation to state, as is frequently stated, that the at- 
titude of groups to economic legislation must in- 
evitably be determined by their economic interest. 
Every part of the industrial system yields at 
some time and occasion to the impact of the 
human will. Even changes in the arts of produc- 
tion may result therefrom, as is w r ell exemplified 
in Mr. Clay's analysis of the way in which the 
standard of life of the wage earners may exert an 
influence over wage rates. . . . This conception 
of a standard of life, though fluctuating, is a rela- 
tively fixed thing in the flux of forces determining 
distribution. The workman, by combination 
tacit or explicit, fixes it and his employer adjusts 
production to it. The employer will do all in his 
power, usually with success, to secure an increase 
in output in return for every increase of wages, 
and where the local standard compels him 
to pay higher wages than his competitor in 



60 THE SETTLEMENT OF WAGE DISPUTES 

other districts to extract an amount of work corre- 
spondingly greater." x Or, take the hope enter- 
tained by the advocates of the living wage, that 
its enforcement would produce a better type of 
management in those industries to which the leg- 
islation is applicable. 

It is characteristic of the present industrial sit- 
uation that no group should rest quietly under 
the dictation of what it is told is economic law or 
necessity. Given its way, each group tests anew 
the habits and arrangements by which it is con- 
strained. Every time an industrial method is 
modified, the agents which share in distribution 
strike a slightly new balance. The direction of 
the stream of product changes with every modi- 
fication of its banks. Some of these modifications 
occur so unexpectedly that they are not to be 
found upon the maps. The pilot, as Mark Twain 
said of the Mississippi, must carry the conforma- 
tion in his head. 

Thirdly (this is usually stated as a limitation 
of the precision of economic analysis), such a 
simple analysis of the action of the factor of rela- 
tive plenty or scarcity as has been given, takes 
no account of the existence of certain human traits 
and qualities. As a matter of fact each group or 
agent of production receives, not what it must 

1 H. Clay, "Economics for the General Reader," pages 237- 
38. See also Essay by the same author entitled, "The War 
and the Status of the Wage Earner" in a volume entitled, 
"The Industrial Outlook" for a more extensive analysis of the 
part played by the standard of life in fixing wages. 



THE PRINCIPLES OF WAGES 61 

receive, but rather what it manages to secure in 
the higgling of the market. Ignorance of the 
state of the market plays a part in distribution. 
A sense of fairness plays a part, as when an 
employer pays wages higher than are current be- 
cause his business is prosperous. Anxiety plays a 
part, as when the fear of unemployment leads a 
man to accept a wage below that which he might 
have asked and secured if he had some money 
to fall back upon. 

Lastly, changes in distribution resulting from a 
change in the relative plenty or scarcity of the 
various groups or agents of production may, in 
turn, cause further changes in the actual state of 
plenty or scarcity; or may bring about changes 
in any of the other forces which affect distribu- 
tion. For example, it is conceivable that an in- 
crease in men's wages in certain industries (due, 
let us say, to an improvement in productive 
methods) should be the cause of a withdrawal of 
a certain amount of juvenile labor from employ- 
ment in these industries. This withdrawal might 
in turn lead to an increased demand in those in- 
dustries for adult labor, and so in turn affect the 
distributive situation. The process of distribution 
is a process in which few changes can occur in any 
direction, without these changes in their turn 
giving rise to further changes. 

8. — The foregoing exposition of the forces de- 
termining the share of the product of industry 



62 THE SETTLEMENT OF WAGE DISPUTES 

that goes to the wage earners can be briefly sum- 
marized. The process of distribution is carried 
out mainly by the action of competition; it is 
marked by active and stubborn self-assertion on 
the part of all groups which share in the product. 
One of the most important and constant factors 
in the determination of the outcome as regards 
wages is the relative plenty or scarcity of the vari- 
ous groups or agents of production. For the 
contribution made by the ordinary worker, as a 
part of a productive organization, to the total of 
market values produced, is largely settled thereby. 
However, other human qualities besides those 
which are ordinarily considered as to be active in 
the competitive process figure in the distributive 
outcome. Furthermore, changes in distribution, 
brought about by any other cause may in turn 
modify the relative plenty or scarcity of the vari- 
ous groups or agents of production, and thus re- 
sult in further changes. And lastly, since the 
distributive situation at any given time, is de- 
pendent upon human arrangements, the idea that 
underlying all distributive action, there is a 
tendency to approach a point of "normal equilib- 
rium" must be rejected. For human behavior is 
frequently directed to produce change, not repeti- 
tion. The better informed that human beings and 
communities are of the consequences of their 
actions, the stronger the tendency mutually to 
control and adjust them for defined purposes. 
Therefore, the idea that the distributive situation 



THE PRINCIPLES OF WAGES 63 

at any given time is directed to a point of rest or 
equilibrium is incorrect. Many diverse tendencies, 
some of long standing, some of newer birth, act to 
produce future results different from those of the 
present or past. The concept of normal equilib- 
rium is inadequate to account for the distributive 
situation at any given time ; it is misleading with 
regard to prospective policy. 

9. — The preceding sections were devoted to an 
explanation of the manner in which the relative 
plenty or scarcity of the various groups or agents 
of production influenced the sharing out of the 
product of industry, and of the interactions to 
which this factor was subject. It may now be 
asked what governs the actual state of relative 
plenty or scarcity of the various groups or agents 
of production. No answer could be returned to 
that question, however, without undertaking a 
far-reaching investigation of a great number of 
separate conditions and tendencies. The task is 
far beyond our present opportunity. It is worth 
while, however, for present purposes, to delimit 
the task sharply, and to attempt a brief enumera- 
tion of the most important of the conditions which 
determine, on the one hand, the need of the pro- 
ductive system for labor, and, on the other hand, 
the supply of labor — that is, of the relative plenty 
or scarcity of labor. 

The conditions' which govern the need of the 
productive system for labor may be summarized 



64 THE SETTLEMENT OF WAGE DISPUTES 

as follows: Firstly, the consumption habits of the 
community, by which is decided the direction in 
which the productive powers are employed; 
secondly, the state of the productive arts, which 
governs the manner in which the various agents 
of production are combined for purposes of pro- 
duction; thirdly, the available supply of the 
agents of production, other than labor. Each of 
these are in return governed by a complex set of 
forces. 

The conditions determining the supply of labor 
may be summed up under two headings: Firstly, 
"the state of knowledge, and of ethical, social and 
domestic habits." * Secondly, the tide of immi- 
gration and emigration. The conditions which are 
summarized under the first heading govern the 
supply of labor in many different ways. They 
govern the length of the working day ; they settle 
the regularity of work. They determine the num- 
ber of the members of the family that seek work. 
They regulate the ages of entrance into industry 
and retirement from industry. They tend to 
govern the rate of growth of the population — both 
through the birth and the death rate. It should 
be clearly understood, however, that many of 
these habits or conditions are themselves, in a 
measure, a function of the level of production and 
of earnings. For example, the state of knowledge 
within a community is to-day very considerably 

1 A. Marshall, "Principles of Economics" (7th edition), page 
G42. 



THE PRINCIPLES OF WAGES 65 

affected by the financial support of education — by 
the amount the community can (as well as does) 
spend upon it. 

The importance of immigration and emigration 
is firstly, the addition or subtraction thereby made 
to or from the supply of labor, and, secondly, the 
influence of the immigrants upon those habits of 
the community, which in turn affect the supply 
of labor. 

10.— The third of the forces quoted earlier in the 
chapter, as among those which play a constant 
and important part in the determination of wages, 
is the relative plenty or scarcity of different kinds 
of labor. The statement of this force acknowl- 
edges the existence of facts which up to this point 
have been barely recognized. It calls attention to 
the existence of considerable differences in the 
levels of earnings of different groups or kinds of 
labor. It suggests also that the relative plenty or 
scarcity of the different kinds of labor is the chief 
explanation of these wage differences. We shall 
investigate at some length the causes of these dif- 
ferences in the next chapter. Before going on to 
that subject, however, it is well to trace out the 
connection between the idea of "a general rate of 
wages" as it has been held, and the existence of 
different wage levels. 

The idea of a general rate of wages, as it appears 
in economic theory, rests upon certain broad as- 
sumptions. One of the most important of these 



66 THE SETTLEMENT OF WAGE DISPUTES 

is that there are no "differences of inborn gifts," 
which would lead to a limitation of the flow of 
labor into the upper grades, and thus lead to a 
separation of grades. A second important assump- 
tion is that of complete mobility of labor — no 
obstacles of habit, expense or ignorance to retard 
the flow of labor from place to place, or from in- 
dustry to industry. A third assumption is the 
absence of combination among the workers. A 
fourth is that of equality of opportunity among 
the wage earners; and the absence of barriers of 
race, religion or sex. 

Granted these assumptions, the tendency to 
equality of earnings for labor demanding equal 
skill and effort and performed with equal 
efficiency is established. Competition among the 
workers for employment and among the em- 
ployers for workmen would bring this about. Such 
differences of wages as would exist would arise 
from differences in the nature of the work per- 
formed. Thus Adam Smith wrote that "in a so- 
ciety where things were left to follow their natural 
course, where there was perfect liberty, and where 
every man was perfectly free both to choose what 
occupation he thought proper, and to change it as 
often as he thought proper" five circumstances 
would explain "a small pecuniary gain in some 
employments, and counter balance a great one in 
others." These in his words were: "First, the 
agreeableness or disagreeableness of the employ- 
ments themselves; secondly, the easiness and 



THE PRINCIPLES OF WAGES 67 

cheapness, or the difficulty and expense of learn- 
ing them; thirdly, the constancy or inconstancy 
of employment in them; fourthly, the small or 
great trust which must be reposed in those who 
exercise them; and, fifthly, the probability or 
improbability of success in them." x All such dif- 
ferences would be such as "equalize the attractive- 
ness of occupations" and would be "equalizing 
differences." 2 

If these assumptions were realized in fact, it 
would be correct to view the problem of wages 
as the study of one set of relationships that 
governed a basic level of wages — called the general 
rate of wages — w T ith purely supplementary studies 
of the circumstances governing equalizing differ- 
ences. The problem of wages would be a study 
of forces which were uniformly influential in rela- 
tion to the wages of all labor. For all wages bar- 
gains would be governed by them. 

In truth, however, practically none of the as- 
sumptions underlying the theory of a general rate 
of wages are perfectly realized in the United States 
to-day, and some of them stand in almost direct 
opposition to the fact. It has come about, there- 
fore, that different kinds of labor have relatively 
independent economic fortunes. The forces which 
govern distribution do not effect them equally. 
Facts and circumstances which enter into the de- 

"Adam Smith, "Wealth of Nations" (Caiman's Ed.), Book 
I, pages 101-2. 

2 F. W. Taussig, "Principles of Economics" (Revised Edi- 
tion), Vol. II, page 124. 



68 THE SETTLEMENT OF WAGE DISPUTES 

termination of the level of earnings of one kind 
of labor may not affect the level of earnings in 
other groups. The differences between the level of 
earnings of the various groups cannot be explained 
entirely as "equalizing differences." The "perfect 
liberty" of choice of Adam Smith does not exist. 
Therefore, an investigation of wage principles 
requires study of two sets of forces and relation- 
ships. Firstly, of the forces which govern the out- 
come of distribution as between each and all of 
the labor groups and the other agents of produc- 
tion. 1 And secondly, of the causes of the forma- 
tion of relatively separate groups of wage earners, 
and of the forces which govern the differences of 
wages between them. The first set of these dis- 
tributive relationships has been the principal 
subject of this chapter. The other set will be the 
principal subject of the following chapter. Any 
policy of wage settlement must be based upon a 
knowledge of both sets. 

lr The phrase "each and all of the labor groups" is used to 
indicate that the level of earnings of all the labor groups 
is determined largely by forces which affect them greatly 
(those examined in this chapter), and yet that the deter- 
mination of the level of earnings of each group is something 
of a separate process — due to the fact that the suppositions 
underlying the idea of a general rate of wages are not ful- 
filled. 



CHAPTER IV— PRINCIPLES OF WAGES 

(Continued) 

Section 1. We have next to examine the causes of formation 
of relatively separate groups of wage earners. — Section 2. 
What is meant by a "relatively separate group"?-— Sec- 
tion 3. The causes of the existence of these groups in 
the United States to-day. Inequality of natural ability; 
inequality of opportunity; artificial barriers. All these 
contradictory to assumptions behind theory of general 
rate of wages. — Section 4. Trade unions another factor 
in the formation of relatively separate groups. Indirect 
effects in opposite direction. — Section 5. Each of these 
groups has a relatively independent economic career. 
There are a series of wage levels, all of which are gov- 
erned to a considerable extent by the same forces. — 
Section 6. The way in which the relative plenty or 
scarcity of each kind or group of labor affects its wages. 
Other forces play a part also. — Section 7. The nature of 
wage "differentials." 

1. — We have next, therefore, to look at the 
causes which lead to the maintenance of relatively 
separate groups of wage earners, and then at the 
forces which govern their relative levels of earn- 
ings. 

2. — First of all let us make clear some of the 
characteristics of the relatively separate groups 
of wage earners in the United States to-day. They 
vary greatly both in size and in kind. They are 

69 



70 THE SETTLEMENT OF WAGE DISPUTES 

apt, however, to be conceived as similar because 
of the force of logic. It is not entirely satisfac- 
tory to classify them either as horizontal groups 
(having reference to their position in the scale 
of skill, or of society) or as vertical groups (hav- 
ing reference to their separation by industries). 
For the position of certain groups may be due 
both to the influence of those forces which bring 
about horizontal divisions, and of those which 
bring about vertical divisions. Such, for example, 
is the position of a craft which requires a measure 
of education and training which those who are 
placed by circumstances at the bottom of the in- 
dustrial scale cannot easily get, and which besides 
it is difficult to enter because of trade union regu- 
lations. 

Marshall has described the situation in England 
in terms that roughly fit the facts in the United 
States also. He suggests that the different occu- 
pations may be thought of "as resembling a 
long flight of steps of unequal breadth, some of 
them being so broad as to act as landing stages." 
"Or even better still," he writes, "we may picture 
to ourselves two flights of stairs, one representing 
the 'hard-handed industries' and the other 'the 
soft-handed industries' ; because the vertical 
division between the two is in fact as broad and 
as clearly marked as the horizontal between any 
two grades." * 

1 A. Marshall, "Principles of Economics" (7th Edition), 
page 218. 



THE PRINCIPLES OF WAGES 71 

The position of any relatively separate group is 
usually to be accounted for only as the result of 
many forces, each of which has some effect upon 
the rest. For example, barriers of custom or on 
vested right may limit the field of employment 
for women. This would tend to establish one 
level of earnings for women, and a different one 
for men. As a result women might find it harder 
to get the training necessary to enable them to 
compete with men. And so the interaction of 
causes would proceed. 

So much in the way of preliminary remark upon 
the characteristics of the relatively separate 
groups of wage earners in the United States to- 
day. 

3. — Among the causes which account for the 
existence of these groups there are some which if 
they stood alone would merely modify the ap- 
plicability of the idea of a general rate of wages. 

Such, for example, is the fact that the wage 
earner's knowledge of existing opportunities for 
employment is limited. Considerable discrep- 
ancies of wages for the same work may arise; al- 
though the facilities for the spread of information 
regarding wages has greatly improved, especially 
in the more skilled trades. Then there are, also, 
various expenses of removal, both material and 
psychological, such as are involved in the shifting 
of a family from the city in which it has long 



72 THE SETTLEMENT OF WAGE DISPUTES 

been established. 1 There are, also, the handicaps 
and hazards attached to the learning of a new job 
or trade even though the new job holds out hopes 
of considerably better wages than the old one. All 
such facts as these — for but a few examples have 
been chosen from among many — however, are 
reconcilable with the theory of a general rate of 
wages. They are but minor qualifications of a 
broad general principle. Other facts challenge 
that theory more seriously. They really do point 
to the existence of relatively separate groups of 
wage earners, each with an economic career some- 
what independently determined. 

First among them must be put the inequality 
of natural ability possessed by individuals, and 
the consequent fact that the numbers who possess 
the inborn capacity required for certain kinds of 
work is relatively small. It results from this 

1 For an interesting account — from the point of view of 
the visiting observer — of the mobility of American Labor, 
see the Board of Trade (Great Britain) investigation: "Work- 
ing Class Rents, etc., in American Towns" (1911). CD 5609, 
Pt. V. "... As a consequence partly of the comparatively 
rapid industrial development of the country and partly of 
the scope of its resources, and acting in response to the op- 
portunities which are offered, either in centers where urban 
industries may be more rapidly expanding, in agriculture or 
in mining the mobility of labor is unusually great. In fields 
of employment that are well known as centers towards which 
great numbers of foreigners drift; in which much of the 
labor is unskilled; in which work is especially laborious as 
in the iron and steel works, or especially intermittent as at 
the stock yards and packing houses of Chicago, the constantly 
changing stream of labor that passes through is a conspicuous 
factor of the situation. But in general, there is an unusual 
degree of movement and restless change." 



THE PRINCIPLES OF WAGES 73 

limitation of the higher forms of natural ability, 
that the wages received for the more skilled forms 
of labor may be considerably higher than for the 
less skilled forms without such an increase of 
numbers in the more skilled groups as would bring 
down their wages to the general level. The com- 
petition for employment on the tasks demanding 
skill is limited; separate groups develop. It is 
impossible to tell the extent to which differences 
in inborn capacity would lead to the formation 
of relatively separate groups of labor, if all the 
other assumptions underlying the theory of a gen- 
eral rate of wages w r ere fulfilled in fact. Prof. 
Taussig has expressed this well. "What would 
be the differences in wages, and to how great an 
extent would groups and classes persist, if all had 
the same opportunities, and if choice of occupa- 
tion were in so far perfectly free? Would wages 
then differ only so far as they might be affected 
by attractiveness, risk, and other causes of equaliz- 
ing variations? Would coarse manual labor, for 
instance, then receive a reward nearly as high as 
any other labor, nay, conceivably (since the work 
is dirty and disagreeable) higher than any other? 
Would the soft-handed occupations lose entirely 
the advantages in pay which they now commonly 
have? The answer must depend on our view as 
to the limitation of natural abilities. It is clear 
that some gifted individuals — a few men of science 
and letters, inventors and engineers, business men 
and lawyers, physicians and surgeons — would 



74 THE SETTLEMENT OF WAGE DISPUTES 

tower above their fellows, and would obtain in a 
competitive society unusual rewards. But would 
physicians as a class secure higher rewards than 
mechanics as a class? They would do so only if 
the faculties which a capable physician must 
possess are found among mankind in a limited 
degree. And mechanics, in turn, would receive 
wages higher than those of day laborers only if it 
proved that but a limited number possessed the 
qualities needed. On this crucial point, to repeat, 
we are unable to pronounce with certainty. What 
are the relative effects of nature and of nurture in 
bringing about the phenomena of social stratifica- 
tion, we cannot say." 1 

Next among the facts which account for the 
existence of relatively separate groups of wage 
earners are those which are usually summed up 
under the phrase inequality of opportunity. 
Equality of opportunity in the way of education 
and training, and in the way of healthy and 
strengthening environment would have to be as- 
sured before the theory of a general rate of wages 
could possibly apply. This equality of opportu- 
nity is not realized in the United States to-day. 

The United States has been the scene of con- 
tinuous and heavy immigration. The mass of this 
immigration entered into the field of unskilled 
labor. The great majority of these workers be- 
cause of the partly unavoidable handicap of their 

1 F. W. Taussig, "Principles of Economics" (Revised Edi- 
tion), Vol. II, page 142. 



THE PRINCIPLES OF WAGES 75 

strangeness, and their ignorance of American life, 
and because of their poor education, did not have 
equal chances with the older inhabitants to rise in 
the industrial scale. They could not possibly 
make the same use of the common opportunities 
— even if their natural ability were on a par with 
those of the older inhabitants. Furthermore, the 
rapid growth of our great cities and the accom- 
panying social changes, the growth in the size of 
the average industrial enterprise, and the progress 
of standardization have all lessened equality of 
opportunity. The chances of the children born 
in the lowest industrial groups to discover and 
fairly test their natural abilities have declined in 
relation to the chances of the children more fortu- 
nately born. These conditions have certainly 
checked the working out of those forces on which 
the theory of a general rate of wages rests. 

Thirdly, there is the fact that certain forms of 
work on which youthful labor is employed, give 
no preparation and training for the further stages 
of life and work; and these blind alley employ- 
ments are filled by children born in the lowest 
industrial groups. 

Then there are the barriers of different kinds 
to free movement throughout all parts of the field 
of employment. There are the barriers of sex 
which have added to the crowding of certain oc- 
cupations and industrial grades. There are the 
barriers of race and religion, which have affected 
the flow of labor between different industries. 



76 THE SETTLEMENT OF WAGE DISPUTES 

Lastly, there is the barrier of color, which has pre- 
vented the negroes from developing their natural 
ability. These barriers may be well justified, 
in part or in whole, by other considerations. 
That question need not be considered here. But 
they certainly contribute to the formation of rela- 
tively separate groups of wage earners, with dif- 
ferent levels of earnings. 

4. — The existence and activities of labor unions 
are still another factor in the formation of rela- 
tively separate groups. In many cases labor 
organization tends to follow closely the lines of 
separation or unity established by the other causes 
of group separation or unity. There is often a 
tendency for a single union to include within its 
limits the whole of a group within which all the 
conditions underlying the idea of a general rate 
of wages are well fulfilled; or for various unions 
to merge or act together, if these conditions are 
well fulfilled between them. G. D. H. Cole has 
given a case in point. "Clearly the ease with which 
an industrial union can come into being depends 
upon the sharpness of the distinction between the 
skilled and unskilled in the industry concerned. 
Thus in the mining and textile industries, as we 
have already noted, there is no very sharp distinc- 
tion between the two classes of workers. In 
mining, the boy who enters the pit has every 
chance of passing before many years have gone 
by into the ranks of the coal getters, who form the 



THE PRINCIPLES OF WAGES 77 

skilled section of the mining community. There 
is no sharp division or cleavage of interest be- 
tween the main sections of the mining community. 
Promotion runs easily from one grade to another, 
and therefore, it is easier to realize a form of com- 
bination in which all the various sections are 
grouped together in a single industrial organiza- 
tion." x . . . 

This tendency, however, has not been perfectly 
realized by any means. It often happens that the 
scope of a labor union will coincide with the 
underlying facts of unity at one time, but not 
permanently. The limits of particular trade 
unions have sometimes been set by an accident of 
time or place; by some episode in union history. 
The internal politics of the union movement has 
been the decisive factor in still other instances. 
Furthermore, industrial conditions are constantly 
changing and creating new lines of group separa- 
tion or unity, which may vary from the lines of 
the existing labor unions. 

Labor organization affects the formation of rela- 
tively separate groups of wage earners both 
directly and indirectly. First as to its direct in- 
fluence. A labor union is a combination of a 
number of individuals, formed with the intention 
of advancing the material welfare of the group 
and for such wider purposes as the group may 
agree upon. The chief peaceful method of union- 
ism is collective bargaining; its chief combative 

1 G. D. H. Cole, "Introduction to Trade Unionism," page 11. 



78 THE SETTLEMENT OF WAGE DISPUTES 

method is the strike. Labor unionism is a factor 
in the formation of relatively separate groups of 
wage earners, because each autonomous, or prac- 
tically autonomous, trade union is a point of pres- 
sure upon the distributive mechanism. Each 
trade union strives to turn the balance of dis- 
tribution in its own direction. This it does in a 
variety of ways. 

It may by its wage demands tests out the nature 
of the demand for the products of its labor. It 
strives to force the price of these products up to 
the point which seems to promise the greatest 
wage income for the group. It may by its pressure 
on the employer brings about a revision of pro- 
ductive methods. It seeks by its strength to 
secure that portion of the product which, in its 
view, goes to the strongest contender for it. 
Unions, indeed, sometimes strive to restrict the 
flow of labor into their craft or industry by de- 
liberate regulation or silent obstruction. Such 
instances are less important than formerly in all 
probability. On occasion unions may even play a 
part in determining the field of employment for 
their members. Thus G. D. H. Cole points out 
that in England the trade unions do not recognize 
"differences between skilled and less skilled work- 
ers as demarcation disputes, and do not recognize 
the right of unskilled workers to raise such cases 
against skilled unions. In fact, the skilled unions 
virtually claim the right to do such work as they 
think fit, and so far as they can enforce their claim, 



THE PRINCIPLES OF WAGES 79 

to exclude the less skilled where they think fit." * 
Again unionism may indirectly through its wage 
policy cause a slowing up of recruiting of new 
men into the craft or industry. In short, by every 
means at its command, a union strives to assert 
the importance of its group * as against other 
interests. Thus, in respect to the activities just 
described, unionism must be included among the 
influences which lead to the formation and main- 
tenance of relatively separate groups of wage 
earners. 

On the other hand, trade unionism in many in- 
direct ways tends to have an effect in the opposite 
direction. By a constant adherence to certain 
broad policies, the trade union movement may 
contribute much to a realization of the conditions 
on which the idea of a general rate of wages is 
based. Such, for example, is the emphasis played 
by the trade union movement upon free and com- 
pulsory education, and the raising of the age of 
entry into industry. Such, also, is its advocacy of 
social legislation which is aimed to give more 
nearly equal opportunity to the lowest grades of 
industrial workers. Or, to take a third example, 
such is the result of the aid given by the skilled 
trade unions to the unskilled workers in their 
efforts to organize. Unionism works against the 
formation of relatively separate groups of wage 
earners to the extent that its activities contribute 
towards the achievement of equality of opportu- 

1 G. D. H. Cole, "Introduction to Trade Unionism," page 61. 



80 THE SETTLEMENT OF WAGE DISPUTES 

nity for all wage earners, and to the extent that 
the strong groups come to the assistance of the 
weaker. 

5. — The main cause of the formation of rela- 
tively separate groups of wage earners, with dif- 
ferent, though closely related levels of earnings 
have now been considered. As a result of these 
influences, it must be concluded that the deter- 
mination of the wage level of each of the various 
groups of wage earners is a sufficiently inde- 
pendent process to make it necessary to account 
for it as such. The various groups of wage earners 
have relatively separate economic careers so to 
speak. The economic fortune of each group is 
not settled merely as part of one general process, 
though the economic fortunes of all are intimately 
connected. The wage situation is not to be ex- 
plained as consisting of one basic level of wages 
with a series of equalizing differences; but rather 
as consisting of a series of wage levels, all of 
which are governed to a considerable extent by 
the same forces or conditions. 1 

6. — We can now pass on the final question which 
confronts us. How are the differences between 

1 For an eloquent and incisive discussion of this whole 
subject, based, of course, on the facts of his own time, see 
the chapter in J. S. Mill, "Principles of Political Economy," 
entitled u i )!' the differences of wages in different employments. " 
Book II, Chapter XIV, concludes: "Consequently the wages of 
each class have hitherto been regulated by the increase of its 
own population rather than of the general population of the 
country." Page 393. (Edition Ashley.) 



THE PRINCIPLES OF WAGES 81 

the level of earnings of the relatively separate 
groups of wage earners determined? 

The factors which determine the relative levels 
of earnings of each of the different groups may- 
be put into two sets. First, those factors in 
regard to which each group stands alone and sepa- 
rate. Second, those which arise out of the deal- 
ings between the several groups. 

"The relative plenty or scarcity of the different 
kinds of labor" falls in the first set. It will be re- 
membered that this was among the three forces 
which, earlier in the book, were stated to be 
among the most constant and important in the 
determination of wages. The processes by and 
through which the facts of relative plenty or 
scarcity work out their effect in the distributive 
result have already been examined. If the num- 
bers in any group of wage earners are high relative 
to the uses in which the employment of the mem- 
bers of that group results in a considerable addi- 
tion to the product of market values, the wages 
of that group will be low, and vice versa. The 
need of the productive system for any kind of 
labor, relative to the supply available to fill that 
need is an important factor in determining the 
reward paid for that labor. 

Furthermore, the statements in regard to the 
interactions to which the action of the factor of 
relative plenty or scarcity was subject, apply with 
equal force to the problem under discussion. 
Every human quality plays its part in the actual 



82 THE SETTLEMENT OF WAGE DISPUTES 

processes and negotiations by which the wages 
of the various groups of wage earners are settled. 
The outcome depends on many forces, some 
stable, some shifting and difficult to trace. Among 
those forces labor unionism, as the assertion of 
group economic power, holds a significant place. 

In one respect, indeed, the previous analysis 
does not apply accurately to the question of dif- 
ferent, though closely related wage levels. It is 
probable that the opportunities for the substitu- 
tion of one type or group of labor for another type 
or group are more extensive and numerous than 
the opportunities for the substitution of one agent 
of production for another. And this fact limits 
the differences of wage levels that may arise be- 
tween different kinds or groups of labor. For 
substitution of one type or group of labor for an- 
other is one of the ways in which changes in the 
relative plenty or scarcity of the different types 
or groups are brought about. 

So much for the first set of forces — those in 
regard to which each group stands alone. The 
second set — those which arise out of the relation- 
ships between the various groups — remains for 
consideration. 

Among these is the influence of customary wage 
relationships upon the course of wage movements 
within an industry, and to a lesser extent through- 
out industry. Because of the existence of vague 
customary relationships, wage movements affect- 
ing some groups or classes of labor are likely to 



v THE PRINCIPLES OF WAGES 83 

stimulate similar movements among other groups; 
though it is plain that the efforts of different 
groups may not meet with equal success. This is 
well exemplified in the case of railway labor, of 
which Mr. Stockett has written, "Indeed there is 
every likelihood that the existence of a powerfully 
organized and highly paid group of labor in any 
industry — such as the engineers and conductors 
in railway transportation — far from being detri- 
mental, may in the long run, be beneficial to the 
interests of the unorganized and low paid work- 
men. There is a tendency among the employees 
to keep a close watch on the wages paid to other 
groups of their fellow workmen, and the differen- 
tial between their wage and that of some other 
grade of employment is jealously guarded. Thus 
on the railways, wage increases usually advance 
in cycles, an advance to engineers being followed 
at a close interval by an equivalent advance to 
firemen, conductors and trainmen. Existing dif- 
ferentials are more jealously maintained among 
the train service employees than among other rail- 
way workers, but that the latter do aim to main- 
tain their relative level below the skilled groups 
is evidenced by the reference in arbitration pro- 
ceedings to the advances made by the train service 
employees and by their claims to proportionate 
advances. Thus an increase in the wages of a 
highly paid group of employees, on account of this 
tendency to maintain existing differentials tends 
to put in motion a cycle of wage advances extend- 



84 THE SETTLEMENT OF WAGE DISPUTES 

ing to all grades of labor.'' 1 Public opinion and 
public agencies of wage settlement have in the 
past been inclined to give support to the idea of 
the maintenance of customary relationships, even 
when the justification was flimsy. 

Far more important is the factor of mutual aid 
between groups. For example, in pursuance of 
some general object skilled groups of labor have 
given support to minimum wage legislation for 
unskilled female labor; or again, such instances 
as the occurrence after the panic of 1907, when 
various organized groups of wage earners made 
common cause to resist wage reductions even for 
unskilled and unorganized labor. Such mutual 
aid plays its part in determining the wage levels 
of the different groups of wage earners. 

This concludes the explanation of the forces 
which govern the relative wage levels of the sepa- 
rate groups or classes of labor. The actually ex- 
isting differences of earnings between different 
groups of labor can only be explained by the com- 
bined influence of all the forces discussed. 

7. — Differences in the levels of earnings of vari- 
ous groups of wage earners have been called "dif- 
ferentials." An effort has been made to explain 
their causes. Several practical conclusions, in 

1 J. N. Stockctt, "Arbitral Determination of Railway Wages," 
pages 165-6. See also account in Lord Askwith's "Industrial 
Problems and Disputes" of the influence of customary differ- 
entials upon wage movements during the war, pp. 400-26. 



THE PRINCIPLES OF WAGES 85 

regard to them, may be deduced from the preced- 
ing discussion. 

Firstly, that these differentials (which may be 
measured by the differences between the average 
earnings of various occupations) result from, and 
in that sense represent, a large variety of actual 
forces ; some of which can only be changed slowly 
and with much effort, as, for example, the relative 
plenty of the lowest grades of labor. As complete 
a knowledge as is obtainable of the various forces 
which produce these differentials is absolutely 
necessary to any project of wage regulation. 

Secondly, although they represent a large 
variety of actual forces, it is misleading to apply 
such adjectives as "normal" or "natural" to them. 
For such adjectives inevitably suggest that the 
condition to which they are applied corresponds 
to a set of facts from which divergence can be 
only temporary, and is probably accidental. That, 
however, is not true in regard to the wage differ- 
entials which exist at any given time. 

Thus, and thirdly, in any project of wage regu- 
lation, existing wage differentials can neither be 
accepted nor rejected blindly. A policy of wage 
settlement for industrial peace need not be based 
upon the acceptance and maintenance of all exist- 
ing differentials. On the other hand, whatever 
revisions are undertaken should rest upon a 
knowledge of the forces which have established 
existing differentials. The policy of the South 
Australian Industrial Court, as expressed by its 



86 THE SETTLEMENT OF WAGE DISPUTES 

President, would seem to be a practical applica- 
tion of this view. To quote from one of his de- 
cisions: "Preexisting or customary marginal dif- 
ferences are followed by this court as a prima facie 
rule, but the rule is only prima facie, and is sub- 
ject to revision in the light of argument and evi- 
dence." x 

a Page 232, Vol. II (1918-19), S. Aust. Ind. Reports, The 
Furniture Trades Case. 



CHAPTER V— WAGES AND PRICE 
MOVEMENTS 

Section 1. The transactions of distribution arranged in terms 
of money. How does this affect the outcome of distri- 
bution as regards wages? — Section 2. The characteris- 
tics of price movements. — Section 3. The direct and 
indirect effects of upward price movements upon the 
distribution of the product. — Section 4. The direct and 
indirect effects of falling price movements upon the dis- 
tribution of the product. — Section 5. The doctrine of 
the "vicious circle of wages and prices" examined. Its 
meaning and importance. 

1. — Up to this point the investigation of the 
forces which govern wage incomes has proceeded 
with only the most incidental acknowledgment of 
the fact that the whole series of processes which 
is described as production and distribution is per- 
formed with the aid of a monetary system. Pro- 
duction entails a constant comparison and calcula- 
tion of money values. The transactions of dis- 
tribution likewise. How does the intervention of 
a monetary system affect the outcome of distribu- 
tion? How does it modify the share of the wage 
earners in the total product of industry? The 
subject of prices and price levels is one of the most 
difficult of economic subjects. However, our pur- 
poses do not require any inquiry into the general 

87 



88 THE SETTLEMENT OF WAGE DISPUTES 

theory of the subject. It will suffice for us merely 
to recognize the existence of different types of 
price movements, without investigating except at 
particular points the conditions which govern 
them. 

2. — It is common practice to use the term "price 
level" to denote the position of prices of commodi- 
ties in general. The price level is never anything 
more than the concept of a collection of prices of 
particular commodities. It is convenient to be 
able to express the position of this collection of 
prices by a single figure. To do this, use is made 
of various statistical devices by which this collec- 
tion of prices can be combined into one price — 
which will be statistically representative of the 
collection. That single figure is known as the 
Index Number of that collection of prices. 
Changes of the Index Number represent changes 
in the position of the collection of prices from 
which it has been statistically derived. 

All price changes are changes in the prices of 
particular commodities. Of course, a change in 
the price of one commodity may produce a change 
in the prices of other commodities. Relatively 
small and occasional changes in a few, or even in 
a great many of the prices which make up the 
price level, have no importance for the problem 
of wages. Indeed, if the price level remained 
nearly stationary there would be no necessity of 
undertaking this investigation of the effects of 



WAGES AND PRICE MOVEMENTS 89 

price change upon the distribution of the product. 
However, large and protracted changes in the 
price level do occur, and these are genuinely im- 
portant factors in the distributive outcome. 

A study of the major price movements of the 
past makes clear the chief characteristics of these 
large and protracted changes in the price level. 
They are irregular changes. That is to say, all 
of the individual prices which make up the price 
level do not change at the same time, nor to the 
same extent. Certain prices may even change in 
opposite directions. 1 

It is well to mark also, in passing, that the prices 
of some or many of those articles which occupy 
a very important place in all calculations of the 
cost of living of the wage earners. — the articles of 
food and clothing, and shelter — may change in a 
different measure, or even in a different direction 
from the prices of the other commodities which 
compose the general price level. This possibility 
is the most genuine as regards food prices. Move- 
ments of food prices, and, indeed, of the prices of 
all agricultural products, are apt over short periods 
to be determined by weather conditions rather 
than by the industrial events which govern the 
general price movement. Mr. W. C. Mitchell in 
his book on business cycles studied the relation 

1 For data upon this irregularity, see the tables in W. C. 
Mitchell, ''Report on Prices in the United States," 1914-18. 
See also his "Gold, Prices and Wages under the Greenback 
Standard." Tables 20-22 for study of dispersion of retail 
prices. 



90 THE SETTLEMENT OF WAGE DISPUTES 

between the movements of retail food prices (the 
figures ordinarily used in cost of living investiga- 
tions) and general business conditions during the 
1890-1910 period in the United States. He writes 
in conclusion that "these figures (i.e., of 30 retail 
food prices) indicate a certain correspondence be- 
tween retail prices and business conditions. In 
1893, indeed, the thirty foods rose slightly instead 
of falling, but they declined during the dull years 
which followed the panic, and rose again when 
prosperity returned. The rise was slow until 1900- 
02; it became slow again in 1902-04; but rapid in 
1905-07. The panic of 1907 came too late in the 
autumn to exercise much influence upon the aver- 
age retail price level of that year. On the whole, 
this series reflects the course of business cycles 
better than might have been expected. For the 
supply of vegetables and animal foods varies in 
an arbitrary fashion determined by the weather, 
and the demand for staple foods is less affected 
by prosperity and depression than that for the 
more dispensable commodities." 1 Even over 
periods of some duration there may be a marked 

1 ''Business Cycles/' W. C. Mitchell, page 95. See also page 
109. "In the case of animal and farm products, however, 
where dependence is not upon natural deposits of minerals 
and forests which have grown through decades, but upon the 
fruits of human labor during one or two seasons, frequent 
contradictions between the movement of prices on the one 
hand, and changes in business conditions on the other hand, 
seem likely to continue for a long time to come." See also 
"Gold, Prices, and Wages under the Greenback Standard," 
pages 48-54. 



WAGES AND PRICE MOVEMENTS 91 

difference between the movement of food prices 
and other prices. 

3. — Changes in the general level of prices must 
have prior causes, but they, themselves in turn 
cause economic disturbance. They give a tilt to 
the whole industrial system which manifests itself 
in the outcome of distribution. The effects upon 
the distribution of the product of an upward 
movement of prices are ordinarily different from 
those produced by a general decline in prices. 

It is well to begin with the first case — a period 
of a rise in the general price level. To give an 
accurate analysis of the successive interactions by 
which an upward movement in the general price 
level, once stimulated, asserts itself, is both a deli- 
cate and lengthy task. It cannot be attempted 
here. 1 It suffices to note the ordinary distributive 
results of the process; with the important reserva- 
tion, however, that they do not occur in the meas- 
ure that the rise is occasioned by a general reduc- 
tion in the productivity of industry such as might 
be caused by war. 

There are firstly what may be called the direct 
results. Prime costs of production do not increase 
as rapidly as prices, and supplementary costs rise 
even less rapidly than prime costs. Prices rise 
faster than wages and interest charges, and rents 
tend to remain fixed by leases and other arrange- 

*See W. C. Mitchell, "Business Cycles." Also B. M. An- 
derson, Jr., "The Value of Money." 



92 THE SETTLEMENT OF WAGE DISPUTES 

ments. Especially in the first year or two of rising 
prices, the rise in wages tends to be slow; in the 
later stages it ordinarily becomes more rapid. 1 
Thus Mitchell in his study of wage and price 
movements during the Greenback Period in the 
United States (1860-80) writes that " . . . The 
table shows an almost universal rise of wages dur- 
ing the war — though a rise far from equal to the 
advance of wholesale or retail price/' 2 And in 
his study of price and wage movements from 
1890-1910 in the United States he writes, "The 
figures indicate that the prices of labor are influ- 
enced by changes in business conditions, but in 
less measure than the price of commodities, even 
at retail. The general average declines after the 
panic of 1893, recovers in 1896, advances in 1898- 

1903, makes very little gain in the dull year of 

1904, and then rises rapidly again in 1904-7. But 
the degree of rise and fall is considerably less than 
that of commodities at wholesale and just about 
the same as that of food at retail." 3 

The lag of wages behind prices varies in degree 
in different industries and occupations, for neither 
prices nor wages go up uniformly. The general 
direction of wage change is marked, but there is 
nevertheless considerable variation in the amount 

J Sce W. C. Mitchell, "Business Cycles," pages 465-6, 476. 
-'See W. C. Mitchell, "Gold, Prices, and Wages under the 
Greenback Standard," page 10. 

3 See W. C. Mitchell, "Business Cycles," page 132, Chart 
13. See also F. W. Taussig, "Results of Recent Investigations 
on Prices in the U. S.," in Yale Review, Nov., 1893. 



WAGES AND PRICE MOVEMENTS 93 

of wage change. 1 These variations in wage change 
are to be explained by the fact that the wage 
earners tend to fall into groups whose economic 
fortunes are in some measure independent of each 
other. They therefore are only slowly affected 
by changes in each other's position. 

On the other hand, since the increase in ex- 
penses of production in most industries tends to 
lag behind the rise in the price obtainable for 
products, profit returns increase during such 
periods, especially in industries in which the wages 
bill is an important part of the expenses of pro- 
duction. To quote Mitchell again, "The net re- 
sultant of these processes is to increase profits. 
Of chief importance is the fact that supplementary 
costs rise slowly in comparison with the physical 
volume of business. ... In many instances 
prime costs also lag behind selling prices on the 
rise. . ; ." 2 

The definite exception to this last conclusion 
is when the rise in prices is caused by general 
lowering of the productivity of industry. And so 

1 Mitchell writes with reference to the 1890-1910 period 
that "on examining the figures for separate industries, one 
finds there is less variety of fluctuation than in commodity 
markets. But still considerable differences appear between, 
say, cotton mills and foundries, or building trades and shoe 
factories. However, no industry escaped a reduction of 
wages after 1893, and none failed to register a large advance 
between 1894 and 1907," page 132, "Business Cycles." See 
also for 1914-1919 data, Research Report Number 20 of the 
National Industrial Conference Board on "War Time In- 
creases of Wages." 

2 W. C. Mitchell, "Business Cycles," pages 468-9. 



94 THE SETTLEMENT OF WAGE DISPUTES 

also it may be said that to the extent that higher 
prices are merely a mark of an increased cost of 
labor, or a drop in the efficiency of industrial 
enterprises, it does not follow that profits are 
growing. It is generally held that there is such 
a falling off in the efficiency of industrial enter- 
prises, and an increase in the cost of labor in a 
period of very rapid business expansion and rising 
prices — especially toward the end of the period. 
Mitchell writes: " . . . Prosperity is unfavorable 
to economy in business management. When mills 
are running overtime, when salesmen are sought 
out by importunate buyers, when premiums are 
being offered for quick deliveries, when the rail- 
ways are congested with traffic, then neither the 
over-rushed managers nor their subordinates have 
the time and the patience to keep waste down to 
the possible minimum. The pressure which de- 
pression applies to secure the fullest utilization 
of all material and labor is relaxed, and in a hun- 
dred little ways the cost of business creeps up- 
ward." 1 

a W. C. Mitchell, "Business Cycles," page 483. The in- 
creased cost of labor arises from many causes besides the 
increase of wages. The less efficient workers receive fuller 
employment; extra rates are paid for "the tired labor of 
overtime"; there is likely to be an increase in the rate of 
labor turnover due to the rapidity of wage movements and 
the ease of getting a job; and lastly it is said that work is 
carried out with less energy when the workmen are secure 
in their employment. Mitchell goes so far as to write that 
"labor is a highly changeable commodity — its quality deteri- 
orates as its price rises" (pages 476-7), "Business Cycles." 
See also J. C. Stamp, "The Effect of Trade Fluctuations on 
Profits," Journal of the Royal Statistical Society, July, 1918. 



WAGES AND PRICE MOVEMENTS 95 

Then there are the indirect effects of the process 
of price change upward. Since profits generally 
are large, production tends to be stimulated and 
the volume of production increases. The turn- 
over of industry is quickened somewhat. Plants 
are more fully utilized, and unemployment is 
small. More overtime is worked. The total earn- 
ings of the wage earners are likely to advance 
more than wage rates. The extent of the diver- 
gence between the increase in hourly or piece rates 
and weekly or yearly earnings is likely to vary 
greatly according to the nature of the causes of 
the price movement. When the price movement 
is just the reflex of a situation of depreciated 
paper money, for example, the volume of produc- 
tion may or may not be increasing. 

An interesting study of the divergence between 
hourly earnings and weekly earnings for the recent 
war period (Sept., 1914-March, 1919) is contained 
in one of the Reports of the National Industrial 
Conference Board. In the metal industries (those 
most directly affected by the war) the advance in 
weekly earnings for men was stated to be 103 per 
cent, as against 71 per cent, in hourly earnings. In 
the rubber and chemical industries the increases 
in weekly earnings were greater than in hourly 
earnings also, but not to the same extent as the 
above. In the textile industries the percentage 
increases were practically equal, while in the 
boot and shoe industry the increase in weekly 
earnings for men was less than the increase in 



96 THE SETTLEMENT OF WAGE DISPUTES 

hourly earnings. And for women in most indus- 
tries the weekly earnings show the smaller per 
cent, of increase. 1 Of course, figures of yearly 
earnings would be more significant as a com- 
parison. 

It is not easy to reach a general conclusion in 
the matter. It may be said that if the increase 
in prices is but the mark of an ordinary business 
revival — with no unfavorable attendant circum- 
stances — weekly and yearly earnings will be favor- 
ably affected. Whether they will be affected suffi- 
ciently to prevent real wages from falling, par- 
ticularly at the beginning of the period of rising 
prices, whether towards the end of the period real 
wages may not actually have increased — these 
are questions it is not possible to answer except 

^ee Research Report No. 20, National Industrial Confer- 
ence Board, "Wartime Changes in Prices." See also the con- 
troversy between the railways and railwaymen arising from 
the difference described by J. N. Stockett, Jr., "Arbitral De- 
termination of Railway Wages," pages 107-8: "In determining 
the increase in railway wages for the purpose of ascertaining 
whether wages have kept pace with increasing prices the ques- 
tion arises as to whether wages mean earnings or rates. The 
railways maintain that the cost of living argument is funda- 
mentally directed to the establishment of the proposition that 
earnings have not kept pace with the increase in the price 
of commodities, and therefore wages, in connection with the 
cost of living, means earnings. The employees, on the other 
hand, contend that the computation of the increase in wages 
should be based on the assumption that wages mean rates of 
pay, and that the high earnings which the railways show for 
the men are the result of excessive hours worked. They 
claim that it is not valid to assert that wages have kept pace 
with the increase in prices, if an employee must work con- 
tinually over the time set for the minimum day in order to 
make his wages bear the increased price of commodities." 



WAGES AND PRICE MOVEMENTS 97 

as regards a concrete situation. And if the 
increase in prices is the result of currency in- 
flation, or of a general falling off in the level of 
production, weekly earnings are likely to be even 
more unfavorably affected during the period of 
price increase than hourly rates. 

4. — The effects of the process of falling prices 
may also be considered as direct and indirect. The 
direct results are somewhat of the opposite char- 
acter to those just related for a period of rising 
prices. It is difficult to generalize about them. 
If the period of falling prices follows closely upon 
a period of sharply rising prices, during which 
latter period wage increases lagged greatly behind 
price increases, the tendency for wages to rise 
may continue to manifest itself for some time 
after prices have begun to drop. An example of 
such a period is furnished by the years imme- 
diately following the Civil War. 1 In the case of 
the price decline of the year — 1920-21, however, 
wage decreases have come promptly — and this is 
more likely to be the ordinary case. Unless in- 
dustry in general becomes more efficient during 
the period, a continued fall in the price level tends 
to bring about a fall of some degree in the wage 
level. However, just as in periods of rising prices 
the wage increase usually tends to lag behind the 
retail price increase, and even more behind the 

1 W. C. Mitchell, "Gold, Wages and Prices under the Green- 
back Standard," page 102. 



98 THE SETTLEMENT OF WAGE DISPUTES 

wholesale price increase, so in times of falling 
prices, wages often tend to fall more slowly than 
retail prices, and much more slowly than whole- 
sale prices. 1 

The wages of different groups do not fall 
equally. The same dispersion that was noted in 
times of rising prices is found equally in periods 
of falling prices. This is to be explained in the 
same way as the dispersion which occurs in periods 
of rising prices. 2 Organization, however, is likely 
to play a more decisive part in resistance to re- 
duction of wages than in demands for increased 
wages. Industries in which the wage earners are 
highly organized generally find it more difficult 
to economize by way of wage reduction than in- 
dustries in which the wage earners are not 
organized. 

The range of profits of industry during periods 
of falling prices will depend upon the nature of 
the causes which produce the decline. If it is 
simply the result of an increase in industrial 
efficiency, or progress in the industrial arts, profits 
will continue to be satisfactory and may even 
be on the increase. If, on the other hand, the 
price decline results from the occurrence of those 
short periods of forced liquidation known as crises, 
and is accompanied by that state of recuperative 
and cautious business activity known as depres- 

1 For examples, see W. C. Mitchell, "Gold, Wages, and 
Prices under the Greenback Standard," pages 102-3. 
■See pages 92-3, this chapter. 



WAGES AND PRICE MOVEMENTS 99 

sion, profits in most industries are apt to be quite 
low. Such was the 1893-96 period in the United 
States. During the period of forced liquidation 
and immediately thereafter, the number of bank- 
ruptcies is likely to be high. 1 No general state- 
ment is possible concerning the duration of such 
a period of depression and low profits; all accom- 
panying circumstances play a complicating part in 
retarding or hastening business recovery. — The 
present depression of 1920-21 is almost of unprec- 
edented duration, for example. Nor should it be 
supposed that the state of depression must be 
identical with the period of price decline. 2 Given 
favorable circumstances, the price decline soon 
leads to a search for new methods of economy 
in production. Raw materials are likely to fall 
in price. Supplementary costs are rapidly reduced. 
The price of labor tends to fall. Even though 
prices continue to fall slowly, profits may rise to 
a level encouraging to business activity. This 
may also be true of a period of liquidation not 
preceded by crisis. 

In conclusion, it can only be repeated, however, 
that confident generalization as to the direct 
effects of falling prices is impossible. Each busi- 
ness cycle has its own peculiar characteristics — 
it is unique as Mitchell says. 3 

So, too, as to the indirect effects of a general 

1 See W. C. Mitchell, "Business Cycles," pages 438-44. 

2 Ibid., page 558. 

3 Ibid., pages 449-450. 



100 THE SETTLEMENT OF WAGE DISPUTES 

fall in the price level. No one description can be 
given that will hold true of all instances. If the 
main cause at work is of the kind that may be 
called "natural," for example, a gradual increase 
in the productivity of industry, or a decided fall- 
ing off in gold production, such periods are not 
necessarily periods of depression in industry. Em- 
ployment may be constant and weekly and yearly 
earnings high. Thus the period of 1873-1896 in 
the United States was one of declining prices and 
it is generally admitted that that period was one 
of great industrial activity. 1 Moments of exces- 
sive activity are rarer in periods of falling prices 
than in periods of rising prices, but the average 
amount of unemployment may be either greater 
or less. Again, if the decline of prices is in reality 
a movement from a state of depreciated paper 
money to a gold standard, there is a possibility 
that the period may be one of industrial activity 
due to a prevailing confidence in a coming recov- 
ery. It is more likely, however, that such a 
period will be characterized by a falling off in 
business activity and an increase in unemploy- 
ment, particularly at its commencement. 

Lastly, if the price movement is an indication 
of such a period of depression as may precede and 
usually does follow serious industrial crises, it is 
ordinarily accompanied by liquidation and curtail- 
ment of production. In these periods, and espe- 
cially at their height, unemployment grows and 

*See Laughlin, "Money and Prices," Chart III, page 86. 



WAGES AND PRICE MOVEMENTS 101 

earnings fall more than wage rates. Or wage rates 
may remain comparatively steady, but weekly and 
yearly earnings will fall. The extent to which 
this fall in earnings will go depends upon the seri- 
ousness of the industrial maladjustments. 1 Still 
it is safe to conclude that a period of serious de- 
pression following upon a crisis is the least favor- 
able phase of the industrial cycle for the wage 
earners — notwithstanding the fact that wages 
frequently fall more slowly than wholesale prices, 
and somewhat more slowly than retail prices. 

5. — Our object in discussing the effect of price 
movements on distribution is to discover how they 
complicate the problems of wage settlement. Be- 
fore proceeding to this main purpose, however, 
it is desirable to pay particular attention to one 
doctrine of the relation of wage change to price 
change which figures prominently in current dis- 
cussion. 

That is the doctrine known as the "vicious circle 
of wages and prices." It has been well stated by 
Mr. Layton: "It is often asserted that a rise in 
wages is only a move around a vicious circle, the 
argument being put thus; starting with a rise in 
wages achieved, let us say, as the result of a strike, 
the increased wage bill will add to the cost of 
production, and so raise prices; if the rise becomes 
general, the cost of living will increase and 
diminish the purchasing power of wages; this will 

'See W. C. Mitchell, "Business Cycles," page 58. 



102 THE SETTLEMENT OF WAGE DISPUTES 

produce a renewal of discontent among the work- 
ing classes and result, perhaps, in a further de- 
mand, culminating in a strike for still higher 
wages." * This doctrine is affirmed somewhat in- 
differently, when the demands for increased wages 
are made during a period of a relatively steady 
price level, or during a period in which the price 
level is rising steadily. What elements of truth 
does it possess and what is its importance? 

The first thing to note is that the series of 
events visualized in the above quotation can be 
set into motion by any other cause which disturbs 
the price level just as well as by a demand for 
increased wages. For example, a great influx of 
gold into the United States may take place as a 
result of a steadily favorable balance in interna- 
tional trade. Bank reserves may mount, discount 
rates may fall, and if all other circumstances hap- 
pen to be already favorable, a period of increased 
industrial activity may follow. Demand for basic 
products will increase and prices will begin to rise. 
With the tendency of prices to rise, the general 
demand for labor will increase. Wage demands 
will follow, and all the conditions required to make 
the theory applicable are supplied. 

Certain conclusions may be stated at once. 
Firstly, the industrial situation is rarely so bal- 
anced, no matter what the price situation, that 
a measure of wage increase may not be possible 

1 W. T. Lay ton, "Introduction to the Study of Prices," Ap- 
pendix C, page 128. 



WAGES AND PRICE MOVEMENTS 103 

without an equivalent increase in prices. The 
distributive situation is never one of static 
equilibrium. The gain of one group or agent of 
production may simply be another's loss. Each 
group or agent strives for a large return. If wages 
go- up, profits may go down, or new methods of 
production may be devised, or strikes may cease. 
The same possibilities exist in essentials, irrespec- 
tive of any prior price movement. The movement 
of prices upward simply gives ground for the pre- 
sumption that there is a greater possibility than 
usual of increasing wages without causing equiva- 
lent price increases. 

It is incorrect to reason that all participants in 
distribution must come off equally well in this 
succession of changes. A continuous testing out 
of the distributive effectiveness of the various 
agents of production, and of any divisions which 
may exist within each agent, occurs. The various 
groups of wage earners may be better or worse off 
than before. When the price level has shown a 
prior tendency to rise, there is good reason to be- 
lieve that the wage earners stand to gain by a 
vigorous policy of assertion. For then in particu- 
lar, unless the general rise in prices is to be ac- 
counted for by a reduction in the general 
productivity of industry (a possibility always to 
be considered), wage increases can come out of 
the extra income which the other agents are in 
receipt of because of the price movement. 

Secondly, in normal times the process visualized 



104 THE SETTLEMENT OF WAGE DISPUTES 

could not go on indefinitely. Sound banking prac- 
tice imposes a limit upon credit expansion. In 
an abnormal time such as Europe is now passing 
through credit expansion may, indeed, continue 
beyond the point dictated by banking reserves. 
Thus depreciation ensues. This, in turn, is ordi- 
narily limited by the desire to return to a gold 
basis; otherwise it results in financial chaos. 
Barring out this last eventuality, the process of 
price change has a final limit, which must set a 
limit upon wage increases. 

What these general theoretical propositions re- 
garding the idea of the vicious circle do show, is 
that this idea is in itself an attempt at a complete 
theory of distribution. That theory, if con- 
sistently formulated, would be that the product 
of industry is already being shared out among the 
various agents of production in such a way that 
an attempt on the part of any agent to get more 
than what it is receiving at any particular time 
can result only in a price increase. For each agent, 
it is presumed, is getting its "normal" share as 
settled by the general economic position and cer- 
tain unchangeable economic laws. The idea is 
but the shadow of the theories of normal distribu- 
tion mentioned in preceding chapters. It does, in 
common with these theories indeed draw atten- 
tion to certain fundamental economic relation- 
ships. These Judge Brown has expressed well in 
one of his decisions which reads, "The element of 
truth in the Theory of the Pernicious Circle' is 



WAGES AND PRICE MOVEMENTS 105 

that, at a given stage in the history of a particular 
society, there is a limit to the amount which 
should properly be awarded for wages, — both 
wages and profits have to be paid out of the price 
paid by the consumer. If, whether by collective 
bargaining or by strikes, or by judicial regulation 
on the part of the public authorities, an attempt 
is made to narrow unduly the margin of profit on 
capital, then there is likely to be a period of in- 
dustrial dislocation, and every class in the com- 
munity is likely to suffer." 1 But the idea has all 
the misleading effects which have been attributed 
to that general theory of distribution of which it 
is a corollary. It is derived from an analysis of 
the distributive process which does not fit all the 
facts. 

la The Carpenters' and Joiners' Case/' Vol. I, S. Australian 
Ind. reports, page 174. 



CHAPTER VI— WAGES AND PRICE MOVE- 
MENTS (Continued) 

Section 1. The problems of wage settlement arising out 
of upward price movements two in number: (a) Should 
wages be increased during such periods? (b) If so, on 
what basis should increases be arranged? The doctrine 
of the maintenance of the standard of life analyzed. — 
Section 2. An alternative method of adjustment pro- 
posed, based on a new index number. — Section 3. Peri- 
ods of falling prices also present two problems of wage 
settlement, similar in essentials to those presented by 
upward movement. These problems discussed. 

1. — We can now proceed to the consideration of 
the problems of wage settlement which arise out 
of price movements. First, we will deal with the 
problems presented by upward price movements. 
Then subsequently we shall take those questions 
presented by price movements downward. 

The problems presented by upward price move- 
ments are two in number. Firstly, is there any 
reason why wages should be increased during a 
period of advancing prices? Secondly, if there is 
reason, on what basis should the increases be 
arranged? 

The answer to the first of these questions is 
simple. In periods of rising prices wage increases 
tend to lag behind the retail price increase, and 

106 



WAGES AND PRICE MOVEMENTS 107 

very much behind the wholesale price increase. 
The chief aim, therefore, of any plan for the ad- 
justment of wages to upward price movement 
must be the protection of the interests of the wage 
earners. Changes in the distributive situation that 
are unfavorable — judged by reference to the dis- 
tributive outcome to be sought by any policy of 
wage settlement — must be prevented, if possible. 
It is the second of the problems which presents 
the difficulty. 

There is one method of wage and price adjust- 
ment which holds an important place in current 
discussion. Indeed, it has tended to be the pre- 
vailing method although it has never been ap- 
plied systematically in the United States. 1 That 
is the method based upon the doctrine of the main- 
tenance of the standard of living. This doctrine 
aims to maintain real wages at a constant level 
throughout the course of price change. The labor 
unions have usually given it their support, finding 
in it a strong basis for their claims. 2 Is it the best 
possible method of adjustment considering the end 
to be attained? 

Its advantages are definite. It is a simple 
claim. It is a claim the justice of which could be 
denied only under unusual circumstances. It has 
in the past brought considerable benefits to the 

*Nor has it for that matter been applied with consistency 
in Great Britain. See the Minority Report of the War 
Cabinet Committee on "Women's Wages," 1918, page 262. 

2 Webb, "Industrial Democracy," Doctrine of the Vested 
Interests, pages 562-572, 595. 



108 THE SETTLEMENT OF WAGE DISPUTES 

wage earners, because they have usually stood to 
gain by any vigorous assertion of their interests. 
What are its disadvantages? The first of its 
disadvantages is in the difficulty of interpreting 
the doctrine into practical policy. There has 
seemed to be one straightforward way of inter- 
preting it. Investigations have been made from 
time to time of the commodities and services on 
which the working class household tends to spend 
the bulk of its income. As a result of these in- 
vestigations budgets have been drawn up which 
were deemed sufficiently representative of the 
main currents of expenditure of the mass of wage 
earners at a given time and place. On the basis 
of this data an index number of the cost of living 
for the mass of wage earners, at the given time and 
place, has been prepared by methods too familiar 
to require explanation here. In the past the price 
collections ordinarily used were composed mainly 
of the prices of foodstuffs. But recent data covers 
a much wider portion of the total expenditure. 1 
An index number for the cost of living having thus 
been prepared, it has been conceived that the 

1 The data published in the monthly U. S. Labor Bulletin 
covers most of the articles which are at all important in 
the wage earners' budget. The collection of such data, how- 
ever, has remained spasmodic up to the present. See the 
article by H. S. Hanna in the October, 1919, issue of the 
Monthly Review of the U. S. Department of Labor. The Sum- 
ner Committee Report on the "Cost of Living in Great 
Britain" 1917 (CD 8980), covered food, rent, clothing, fares, 
fuel and light, insurance, and sundries. Data was collected 
for skilled, semi-skilled, and skilled labor. 



WAGES AND PRICE MOVEMENTS 109 

variations in this index number were indicative 
of the change in the cost of living. 

This practice, however, is not altogether satis- 
factory. Firstly, the concept of a representative 
budget is necessarily more or less artificial; the 
budgets of wage earners, even in the same class, 
vary considerably in composition. Thus hardly 
any figure on the change of the cost of living has 
been given out without being challenged by one 
or other of the interested parties. Secondly, for 
all except the lowest grades of wage earners, the 
direction of expenditure changes somewhat as 
particular prices change in a different measure. 
This second disadvantage was noted particularly 
during the war, when the supplies of certain com- 
modities were limited or rationed. Thirdly, and 
this difficulty is of a more serious nature, the 
prices of some or many of the articles which 
occupy an important place in all calculations of 
the cost of living of the wage earners may change 
in a different measure, or even in a different direc- 
tion, from the prices of the other commodities pro- 
duced within the country. Food prices in par- 
ticular are apt to respond to different influences 
than those governing the general price level. 1 
However, it is only from the course of change of 
the price level representing all important com- 
modities produced within the country that it is 
possible to get an indication of the change in the 
total conglomeration of market values, which has 

"See pages 89-91, Chapter V. 



110 THE SETTLEMENT OF WAGE DISPUTES 

been called the product of industry. Even then 
the indication is far from an exact one. 

Let us consider the two cases in which the 
change in the prices of some or many articles im- 
portant in the wage earners' budget diverges con- 
siderably from the change in the index number 
of the prices of all important commodities pro- 
duced within the country. The first case is that 
in which the prices of the relatively small collec- 
tion increase much faster than the index of gen- 
eral prices. Such might be the fact in the event 
of two bad harvests in succession. If wages are 
increased in accordance with the movement of the 
prices of the relatively limited collection of com- 
modities, the result of the wage increase may be 
an increase in prices in general. As a result of 
this the wage earners may be better or worse off 
than before, depending upon circumstances. The 
second case is that in which the prices of the rela- 
tively small collection of articles may increase less 
than the index of prices in general. In this case 
any wage increase undertaken in accordance with 
the change of prices of the relatively small col- 
lection would fall considerably short of that which 
could have been ventured without fear of causing 
another price increase — and without waiting for 
the test of profit accumulation discussed else- 
where. 1 

Fourthly, changes in a relatively small collec- 
tion of prices, particularly if foodstuff prices bulk 

1 See Chapter XII. 



WAGES AND PRICE MOVEMENTS 111 

largely in the collection, are apt to be more con- 
vulsive than general price movements. They are 
likely to vary more than general price movements 
from year to year, and, indeed, from season to 
season. This is so, although it is true that retail 
prices tend to be far more stable than whole- 
sale prices. 1 

Lastly, as Mitchell states, as a business factor 
crops are less an effect than a cause of change in 
conditions. "Good crops tend to bring prosperity 
and poor crops depression in the seasons which 
follow. . . ." 2 If foodstuffs fall because of a good 
harvest, it is more likely than not that the next 
industrial year will be a good year. There is, 
therefore, a preliminary presumption that there 
will be no occasion for wage reduction (if wage 
adjustments to falling prices are contemplated — 
which subject will be discussed immediately here- 
inafter) . If foodstuff prices rise because of a poor 
harvest, there is a preliminary presumption that 
the succeeding industrial period will not be one 
of very great activity. Therefore, an increase in 
wages corresponding to the rise in the prices of 
food products would not serve to increase very 

1 "While these two series (i.e., of wholesale and retail food 
prices) agree closely in the general trend of fluctuations, the 
retail prices are much more stable. They lag behind the 
wholesale prices both on the rise and on the fall, but more 
on the fall than on the rise." Mitchell, "Business Cycles," 
page 39. The tables given apply to the 1890-1910 period in 
the United States. They do not show fluctuations for periods 
less than a year. 

2 W. C. Mitchell, "Business Cycles," page 39. 



112 THE SETTLEMENT OF WAGE DISPUTES 

much, if at all, the command of the wage earners 
over foodstuffs. This possibility of a divergence 
in the movement in the price of provisions and of 
wages was pointed out, indeed, by Adam Smith. 
To give the explanation in his words, "In a year 
of sudden and extraordinary plenty, there are 
funds in the hands of many of the employers of 
industry, sufficient to maintain and employ a 
greater number of people than had been employed 
the year before; and this extraordinary number 
cannot always be had. Those masters, therefore, 
who want more workmen bid against one another, 
in order to get them, which sometimes raises both 
the real and money price of their labor. The con- 
trary of this happens in a year of sudden and 
extraordinary scarcity." x 

2. Such are the disadvantages attaching to a 
policy of wage adjustment based on the doctrine 
of the maintenance of the standard of life. It 
may now be asked whether there is any alternative 
method to which smaller disadvantages attach? 

As to the matter of alternative, it is my opinion 
that a better plan of adjusting wages to price 
movements can be devised. The basis of it should 
be the change in the index number of prices of 
all important commodities produced within the 
country. Any scheme of adjustment arranged on 
that basis would have one distinct advantage. It 

'Adam Smith, "Wealth of Nations" (Caiman's Ed.), Vol. 
I, page 87. 



WAGES AND PRICE MOVEMENTS 113 

would be representative of the fundamental dis- 
tributive relationship — that is the relationship be- 
tween the various levels of earnings and the total 
product of market values. It would assure a closer 
accord between wages and total product than the 
widely used method already studied. 

Nevertheless, it must be admitted that this plan 
also is not free from disadvantages and difficulties. 
Some difficulties of interpretation would remain. 
The selection of the ratio in which wages should 
be changed with reference to the course of price 
changes would be wholly a matter of judgment. 
For due to the changes in the expenses of produc- 
tion and to the changes in the volume of produc- 
tion, it will always be impossible to reason con- 
cerning profits merely from the facts of price 
change. And secondly, since all prices do not 
change equally, even if wages are increased in ac- 
cordance with the changes in the index number of 
all prices, these wage increases might cause price 
changes in certain directions. 

Weighing all the difficulties, it may be that the 
best method that can be devised would be some- 
thing in the way of a compromise between the two 
methods that have been discussed. That is, wage 
adjustment to a rising price (and to a falling price 
level — if such adjustment is contemplated) level 
could be made on the basis of the change in the 
price index number of all the important commodi- 
ties produced within the country; but in the 
making of the index number, the prices of food, 



114 THE SETTLEMENT OF WAGE DISPUTES 

rent, and clothing could be given a heavy weight 
(50 per cent., for example) of the total. Such a 
compromise would tend to assure, on the one hand, 
that the wage change did express in a considerable 
measure the change in the cost of living. And, 
on the other hand, it would tend to keep wage 
changes in closer accord with the changes in the 
total value product of industry than any method 
based solely on a measurement of the change in 
the cost of living. 

In conclusion, however, it may be remarked that 
when the prices of the essentials of economic ex- 
istence are increasing very rapidly, there is no 
way, under our wage system, by which the welfare 
of the lowest industrial classes can be effectively 
protected merely by wage adjustment. When 
supplies are short, if their distribution is left to 
the free play of the market, the poorest classes 
must come off badly. 

3. There remain for consideration those ques- 
tions of wage adjustment which are presented by 
downward price movements. They are two in 
number. Firstly, is there any reason why wages 
should be reduced during a period of declining 
prices? Secondly, if they should be reduced, on 
what basis should the reductions be arranged? 

In reference to the first question, three different 
types of situations may be distinguished on the 
basis of the analysis of the effects of price declines 
given in the preceding chapter. The first type is 



WAGES AND PRICE MOVEMENTS 115 

that in which the decline in prices is due to some 
such cause as the progress of invention or the de- 
velopment of the means of transport. In this case 
the fall of prices is brought about by an increase 
in the quantity of goods produced, and there is no 
reason why wages should be decreased. Indeed, 
there may even be occasion for an increase. 

The second case is that in which the decline in 
prices marks a period of reaction from a previous 
period of price increase and a tendency to limit 
production costs and to proceed cautiously, but is 
not accompanied by much forced liquidation and 
is not the result of any urgent necessity to reduce 
bank credit. In short, when the business condi- 
tions accompanying the price decline do not war- 
rant apprehensions of a crisis, serious as they may 
be temporarily. Price declines of this sort may 
be considerable in extent; they will be gradual 
rather than violent. They are apt to be charac- 
terized by less dispersion than those which are 
precipitated by crises. In this case also there 
would seem to be no good reason why wages 
should be reduced. A decline of prices would be 
desirable, it is true. The industrial position would 
be improved thereby and industrial activity would 
be put upon a sound financial basis. Some con- 
traction of credit is to be desired if, as is assumed 
in this case, the period of decline was pre- 
ceded by one of considerable price increase and 
credit expansion. But these results may be ob- 
tained without any reduction in wage rates. The 



116 THE SETTLEMENT OF WAGE DISPUTES 

cost of labor will fall without any reduction in 
wage rates, as the amount of overtime work is 
lessened, as employment is concentrated upon the 
more efficient workers, and as workmen put more 
energy into their jobs in order to hold them. Such 
times as these usually lead, furthermore, to the 
introduction of new or forgotten economies, and 
to improvements in the method of production. 
Thus it can be concluded in this case that what- 
ever reduction of the price level is required to 
restore industry to a sound financial basis can be 
accomplished without reducing wage rates. 

The third case is that in which the decline in 
prices is abrupt — at the beginning at all events — 
and is precipitated by much forced liquidation of a 
character disastrous to the enterprises forced to 
undertake it. In short, when it is brought about 
by an industrial crisis — or when an industrial crisis 
is actively threatened. In this case the decline is 
usually preceded by a period of rapidly rising 
prices which brings about an over-extension of 
credit and puts heavy pressure upon the banking 
system. Maladjustments in industry manifest 
themselves and fear comes to govern all pro- 
duction. The price decline in different industries 
is apt to vary greatly in extent. 

In this case, as in the second, the process of price 
decline — the state of severe depression — tends to 
set in motion certain forces which work for re- 
covery. The owners and directors of industry 
seek for economies. They strive to get greater 



WAGES AND PRICE MOVEMENTS 117 

output from the workers, and generally succeed 
since a job is more precious. Prime as well as 
supplementary costs are cut down. And yet if 
there has been great expansion of credit; if the 
banking system as a whole shows a very low re- 
serve, and some banks suspend specie payment, a 
reduction in the wage level is necessarily essential 
to industrial recovery. This may be so especially, 
if buying is at a halt. The wage reduction should 
follow the price reduction. There would appear 
to be no compelling reason for the wage reduc- 
tion to be in the same ratio as the price decline, 
since it is probable that the wage increases will 
have lagged behind prices in the preceding period. 
The conditions making the case should be clearly 
present; competition or control must be active, in 
order to insure that the reduction of wages really 
does assist price reduction. These important de- 
tails will be considered at another point. 1 

Against such a policy of wage reduction some 
arguments of weight can be brought forward. It 
may be said that all other branches of outlay will 
be subjected to a more severe overhauling when 
there can be no resort to wage reduction. It may 
also be argued out that the maintenance of wage 
levels would confer such indirect assistance to re- 
covery as might come from the lessening of the 
fear that a future fall in wages will make present 
production unprofitable. The factor of industrial 

"See pages 203-7, Chapter IX. 



118 THE SETTLEMENT OF WAGE DISPUTES 

unrest and discontent is apt to be less menacing. 
Lastly, it may be said that wage reductions might 
be reflected in the efficiency of the least favorably 
placed groups of workers. 1 

These objections should be overridden only if it 
is believed that a decline in the price level greater 
than that which could be secured without wage re- 
duction must precede industrial recovery. Or 
that such a decline would, at all events, greatly 
facilitate the recovery. It must be believed that 
at the level of prices existing at the outset of the 
crises, or at a position somewhat but not markedly 
under that level, the margin of safety in the finan- 
cial system by virtue of which modern industry is 
carried on, is too small — the ease with which the 
unfavorable turn of affairs could produce another 
crisis too great. Or that consumers will not re- 
sume buying until prices drop greatly. Under 
which circumstances the policy of wage reduction 
would be as much to the benefit of the wage earn- 
ers as to the rest of the community. 

This case is to be distinguished from the 
previous one really only by the decided seriousness 

1 These in general were the motives for the passing of the 
Temporary Regulation of Wages Act in England (1918). 
''During the period of six months from the passing of this 
act, any person who employs in any trade or industry a 
workman of a class to which a prescribed rate of wages as 
denned in the Act is applicable, shall pay wages to the work- 
men not less than the prescribed rate applicable to workmen 
of that class, or such other rate as may be substituted for 
the prescribed rate by the Interim Court of Arbitration . . . 
and if he fails to do so, he will be guilty of an offense under 
this Act." 



WAGES AND PRICE MOVEMENTS 119 

of the situation it reveals. In this case it is pre- 
sumed that a decided judgment may be made that 
the price level must be greatly lowered before busi- 
ness operations can revive and be carried on with 
confidence in steady markets. In the previous one 
it is presumed that a decided judgment can be 
formed to the effect that the shock to business 
will be satisfactorily gotten over with just that re- 
duction of prices that liquidation and a more care- 
ful conducting of business operations will bring 
about. The difference is, in the last analysis, one 
of degree. 

A price decline that is in reality a movement 
from a state of depreciated paper money back to a 
gold standard may be looked upon as a variant of 
the third case. For it is obvious that if the de- 
preciation is extensive, the decline in the price 
level necessary to the attainment of the gold basis 
must also be extensive. 

There is a fourth possible case which will be 
described, but will not be followed up, since it is 
not applicable to the United States at the present 
time. It is the case of a country whose chief in- 
dustries are export industries — the prices of the 
products of which are determined by world com- 
petition. This case is complex and not to be 
analyzed by a general rule. A few observations 
may be made. It is conceivable that a situation 
should arise in which a policy of wage reduction 
is expedient because the export industries are very 
gravely threatened by foreign competition. In 



120 THE SETTLEMENT OF WAGE DISPUTES 

such a situation it may be argued that any genuine 
necessity for a reduction of wages would be mani- 
fested by the pressure of the banking system, be- 
cause of the outflow of gold that would occur con- 
sequent to a great falling off of exports. But, as 
we have seen during the war, such a banking situa- 
tion may be avoided for a number of years by such 
devices as foreign loans, and the industries in 
question would decline in the meantime. On the 
other hand, any policy of general wage reduction 
could only be undertaken with caution. Situa- 
tions of the sort described tend to call out the re- 
serve energies of a country. They are always pres- 
ent to a greater or less extent. 

So much then in answer to the first question — 
as to whether there was any reason for wage re- 
duction during periods of declining prices. The 
second question then presents itself — on what 
basis should such reductions as are advocated be 
arranged? On which subject the conclusions 
reached in the course of discussion of wage adjust- 
ment to upward price movement are applicable. 
These conclusions will be recalled at various 
points further on in the book. 



CHAPTER VII— THE STANDARD WAGE 

Section 1. The remainder of the book will consist of an at- 
tempt to mark out principles of wage settlement that 
could be applied with relative peace and satisfaction in 
the settlement of wage disputes. — Section 2. Some pre- 
liminary notes on the subsequent exposition. The ques- 
tion of the political machinery required to put any policy 
of wage settlement into effect, avoided on the whole. — 
Section 3. The principle of wage standardization defined 
and explained. — Section 4. The characteristics of the 
standard wage examined. — Section 5. The effect of the 
standard wage on individual independence and initiative. 
— Section 6. The effect of the standard wage on the 
distribution of employment within the group. — Section 7. 
Its effect upon industrial organization, prices, and mana- 
gerial ability. — Section 8. Its effect upon the output of 
the wage earners. This question cannot be satisfactorily 
discussed apart from the larger one — that of the effect of 
unionism upon production. — Section 9. Wage standard- 
ization and the "rate of turnover" of labor. 

1. — In the first two chapters the aims towards 
which any policy of wage settlement for industrial 
peace should be directed were discussed. In the 
following four chapters an effort was made to 
throw into clear light the forces and relationships 
which determine wages at the present time. The 
way has thus been prepared for an attempt to 
work out principles for use in the settlement of 
industrial disputes. Past experience in industrial 
arbitration or adjudication is a fertile source of 

121 



122 THE SETTLEMENT OF WAGE DISPUTES 

suggestion in this endeavor; although much of it 
has been rather like a search in the dark for objects 
not too well described beforehand. The definition 
of aims was an attempt to find out the objects of 
our search. The analysis of the present economic 
situation and of wage principles was an attempt 
to get acquainted with the area in which the 
search must go on. 

The remainder of this book will consist of an 
attempt to work out principles of wage settlement 
which could be applied in wage disputes with re- 
lative peace and satisfaction. If adopted, they 
would serve as a substitute for a resort to open 
force in such disputes. Their acceptance would 
mean that when ordinary collective bargaining 
fails as a means of settling wages, the dispute 
would be referred to some constituted authority, 
who would use these principles to reach a decision. 

2. — The plan pursued in the subsequent ex- 
position requires a few brief preliminary notes. 

First, in regard to the order of exposition. What 
follows is simply the direct statement of a series 
of principles (embodied in measures, as all princi- 
ples must be). These principles, separately 
taken, cover most of the problems presented by 
wage disputes. Taken together they might be 
composed into a policy of wage settlement. In- 
deed, at the end of the book, an attempt is made 
to combine them into such a policy. Not that it 
is believed that any policy of wage settlement can 



THE STANDARD WAGE 123 

really be wrought in a piece this way. But be- 
cause it is believed that ultimately it will be re- 
cognized that wage disputes cannot be settled as 
isolated events. There will have to be recourse to 
thought out principles, systematically applied. It 
will be found that no single principle will suffice; 
that many principles will have to be combined 
and used with reference to each other. There 
will be, in short, a call for a unified policy of wage 
settlement. 

Secondly, in regard to the range of the exposi- 
tion. The question of the political machinery 
that would have to be created in order to ad- 
minister the proposed principles is on the whole 
avoided. To have attempted to discuss that ques- 
tion systematically would have greatly compli- 
cated this inquiry. In places, indeed, it will be 
found impossible to gauge the operation of some 
proposed principle without an understanding of 
the machinery by which it is applied. At such 
points an attempt is made to indicate the arrange- 
ments that would best serve the purposes in view. 

Thirdly, in the formulation of the principles 
suggested, past and present experiments in the ap- 
plication of such principles are liberally drawn 
upon for suggestion. No attempt will be made, 
however, to enumerate systematically the princi- 
ples that have been applied in the pursuance of 
the aim of industrial peace. No effort will be 
made to classify the various theories or principles 
which have been put forward somewhere or some- 



124 THE SETTLEMENT OF WAGE DISPUTES 

time in the past, and then to submit each theory 
or principle to criticism. 1 Or, in other words, no 
attempt will be made to give a primer of opinions 
either as to the difficulties to be encountered in any 
attempt to formulate a policy of wage settlement, 
or of the suggested means of overcoming such 
difficulties. 

3. — The first of the principles or measures which 
is put forward, is known as the principle of wage 
standardization. This principle has been well in- 
terpreted by Mr. Stockett: "The principle of 
standardization is designed to abolish within a 
given area the multiplicity of rates paid for similar 
service by the application of one standard rate for 
each occupation, minor differences in the nature of 
the work due to varying physical and other con- 
ditions being disregarded/' 2 It represents the de- 
sire to do away with the great variety of wage 
rates for the same work which frequently exists, 
and the substitution therefor of a minimum wage 
rate. Good examples of its application are the 
wage agreements entered into by organized bodies 

1 An attempt to classify systematically and analyze the 
various theories of wages that have been used in attempts 
to settle wage controversies in accordance with defined prin- 
ciple has been made by Mr. Wilson Comption in an article 
entitled "Wage Theories in Industrial Arbitration." In its 
enumeration and discussion of the difficulties to be met in 
the application of principles, and of the attitude of most 
agencies of wage settlement it is particularly interesting. 
American Economic Review, June, 1916. 

2 J. N. Stockett, "Arbitral Determination of Railway Wages, 
page 75. 



THE STANDARD WAGE 125 

of wage earners and employers. In these the 
standard rates agreed upon for the various occu- 
pations are the minimum to be paid for these oc- 
cupations, regardless of the particular individuals 
employed, and of minor differences in the nature 
of the work performed. 

Trade union activity is undoubtedly responsible 
for the introduction into industry of the principle 
of standardization. By the device of the "com- 
mon rule/' so called, the possible influence upon 
the wage bargain of the economic position of the 
individual wage earner, or of the inefficiency or 
policy of the individual employer, is greatly cur- 
tailed. The common rule is a suitable instrument 
of expression for the group unity; by its use the 
competition for employment between the various 
members of the group is prevented from taking the 
form of underbidding. 1 

The enforcement of standard rates throughout 
a large area hinders industries from locating in 
places because of the opportunities for the hire of 
labor at cheaper rates, notwithstanding the fact 
that other places may possess greater natural ad- 
vantages. It puts all competing enterprises and 
localities comprised within the area of standardi- 
zation upon the same plane. This is well brought 
out by a resolution brought forward in the 1920 
Convention of the Cigar Makers which reads 
"Whereas, the cigar makers in local unions are 
working on prices in some instances ten to twenty 

x See Webb's "Industrial Democracy," Chapter 5, Part II. 



126 THE SETTLEMENT OF WAGE DISPUTES 

dollars cheaper per thousand lower than the cigar 
makers and unions of different localities, and, 
Whereas cigar manufacturers are taking advan- 
tage of the situation, moving their factories or 
establishing branches of them in cheaper districts 
. . . and, Whereas this is detrimental to the wel- 
fare of the cigar makers and detrimental to the 
principles of the Cigar Makers International 
Union be it resolved by this convention that the 
Cigar Makers International Union adopt as one 
of its aims the securing of a uniform bill of prices, 
taking into consideration all the local conditions 
and necessities of the trade and local interests 
of the cigar makers, etc. . . . " * And finally the 
enforcement of standard rates tends to add to the 
competitive importance of able management. 
Shrewdness in bargaining with the labor force be- 
comes a less important factor in economical 
production; ability to use the labor force, at the 
standard rate, to the best advantage becomes a 
more important factor. The tone of competition 
undergoes a change. 

The principle of wage standardization is already 
accepted in many branches of American industry. 
Even in those branches, however, there remain 
many open questions as to the limits of its appli- 
cability. It has in the main the approval of pub- 
lic opinion, as shown by its acceptance in all 
projects of wage regulation undertaken by the 

1 Resolution No. 18 offered to 1920 Convention, Cigar Makers 
Official Journal, May 15, 1920. 



THE STANDARD WAGE 127 

government in time of war, and by the report of 
the President's Second Industrial Conference. 

4. — It is necessary to study the characteristics 
of standard wage rates in some detail, in order to 
be able to measure the effect of the introduction 
of the principle into industry, and in order, also, to 
mark out the limits of its applicability. 

The first characteristic of the standard wage to 
be noted is that it is only a minimum wage for the 
occupation for which it is enforced. Standard 
wage rates are not of necessity the actual wage 
rates received by all or even a majority of the wage 
earners employed upon the tasks to which they 
apply. They do sometimes become the actual 
rates received by most of the wage earners con- 
cerned ; they become the wage, ordinarily, of those 
workers who fall around the average in skill and 
experience. This fact is liable to misinterpreta- 
tion. It may be taken to mean that the more effi- 
cient workmen do not receive recognition for their 
greater efficiency. What it usually would signify 
is that the wages of the less efficient members of 
the group are increased. 

As a matter of fact variations from the standard 
wage are commonly found. Mr. Collier, after an 
analysis of Australasian experience, concludes on 
this point ". . . . But this is not saying that the 
minimum wage is necessarily the maximum. Al- 
though statistics as to wage distribution are largely 
lacking, the weight of opinion is contrary to this 



128 THE SETTLEMENT OF WAGE DISPUTES 

supposition. In some industries, such as the 
building trades, where contracts are made upon 
the basis of a legally fixed rate, this rate is fre- 
quently the maximum. Yet such instances are in 
the minority. Employers do not reduce the pay 
of their most competent workers because they are 
compelled to pay those less qualified at a mini- 
mum rate." 1 It will be found usually that the 
abler, the more skilled or more experienced workers 
in particular occupations receive higher wages 
than the standard, because of the special value of 
their services. 2 Occasionally also agreements are 

1 P. S. Collier, " Minimum Wage Legislation in Australasia," 
Appendix VIII, Fourth Report of the Factory Investigating 
Commission, New York State (1915). See also R. H. Taw- 
ney's investigations of Retail Tailoring and Chainmaking 
Trades (Great Britain). 

2 D. A. McCabe in his book, "The Standard Rate in 
American Trade Unions," calls attention to two aspects of 
the subject that are frequently overlooked. Firstly, that "in 
any attempt to estimate the extent to which men receive 
wages above the minimum on account of superior efficiency, 
it is important to bear in mind that the minimum in dif- 
ferent scales may stand in very different relation to the modal 
or predominant wage. The proportion of men receiving more 
than the union minimum is frequently large because the com- 
petitive wage has increased since the minimum was estab- 
lished" (page 116) ; and secondly, that "the extent to which 
differential wages are paid above the union minimum, when 
that rate is the rate actually paid to the men whose efficiency 
is about the average, varies widely in different trades. . . . 
Standardization of workmen and of work and the practice of 
dealing with large bodies of men as classes tend to stand- 
ardize the wages paid in the railway service more than in 
trades calling for similar grades of skill in other industries" 
(page 117); so, too, "the tendency towards uniform rates for 
men engaged in the same kind of work is stronger in large 
establishments than in small establishments for the same rea- 
son" (page 117 ff.). 



THE STANDARD WAGE 129 

entered into for the employment of a small 
number of workers, who are acknowledged to be 
well below the ordinary level of efficiency in their 
trade or occupation, because of physical disability, 
old age or analogous causes. As Prof. McCabe 
has said, "Nearly all unions permit members who 
have become unable to command the minimum 
rate because of old age or physical infirmity to 
work for what they can get." 1 

A second characteristic of standard wage rates 
is that they may take the form of time-rates, or 
payment by results, or any combination of the 
two. Trade union agreements in the United 
States include all these varieties. It is true that a 
system of standard time rates is likely to be more 
in accord with the sentiment underlying the stand- 
ardization movement. For under a system of 
payment by results individual differences in ca- 
pacity are apt to be more readily reflected in the 
actual wage payments. And the sentiment 
underlying the principle of standardization is near- 
Prominent among the factors which tend to make stand- 
ard time rates actual rates he mentions: firstly, that the vari- 
ations in efficiency within the membership of a time working 
union are not as likely to be as wide as among the men out- 
side the union in the same trade, because the mere insistence 
on a standard rate tends to exclude some men much below 
the standard of competency. Secondly, practically all of the 
skilled trades unions require candidates for membership to 
prove their competency or be vouched for as competent by 
members who have worked with them. And thirdly, because 
the standard rate is the center of attention in negotiations 
and thus is made the presumptive rate (page 114-119). 

*D. A. McCabe, "The Standard Kate in American Trade 
Unions, ,, page 105. 



130 THE SETTLEMENT OF WAGE DISPUTES 

er the idea of equal payment for equal effort or 
equal sacrifice within the group, than the idea of 
equal payment for equal product. This is illus- 
trated in the report signed by the Labor Members 
of the Committee on Industrial Relations (1912- 
16) in reference to the wage payment systems of 
scientific management which reads, ". . . All of 
these systems of (i.e., of scientific management) 
payment tend to center the attention of the worker 
on his individual interest and gain and to repress 
the development of group consciousness and in- 
terest. Where the work of one man is indepen- 
dent of another, the individual has no motive to 
consider his fellow, since his work and pay in no 
wise depend on the other man. What either does 
will not affect the other's task or rates." * Fur- 
thermore, in some industries it is difficult under a 
system of payment by result to arrange that the 
actual wages received by the average members of 
the group for average effort, will be approximately 
equal. Those are the industries in which there 
are a great variety of jobs with different rates, 
which can only be more or less accurately esti- 
mated in the "price list"; or industries in which 
the working conditions vary greatly, either within 
the same factory or mine, or between different 
factories or mines engaged in similar work. 

Where the philosophy of unionism is firmly en- 

1 Report Bigned by Commissioners Manly, Walsh, Lennon, 
O'Connell, and Garrettson. Vol. I, "Final Report of the Com- 
mission on Industrial Relations" (1912-16), page 132. 



THE STANDARD WAGE 131 

trenched these two systems of wage payment tend 
to be so governed by the actions of the wage 
earners and employers as to lead to approximately 
the same results. The standard wage under a 
time-rate system tends to become the wage for an 
average or customary output. Employers tend 
to demand at least that output for the standard 
time wage, and strive to increase the customary 
output whenever the standard time-wage is in- 
creased. And, on the other hand, under a system 
of payment by results, there is frequently a ten- 
dency for the workers to keep their output around 
a certain general level ; which level, indeed, is de- 
termined only by all the circumstances governing 
the group attitude in the particular shop or in- 
dustry. The "Report on Collective Agreements 
in the United Kingdom" (1910) has stated this as 
follows: "Although the main distinction between 
time wages and piece wages is of the nature de- 
scribed above, it is of importance to note that, 
whether the method of remuneration adopted be 
expressed as payment by results or as payment by 
time, the amount of work performed and the time 
taken in performing the work are factors, both of 
which are, to a greater or less extent, taken into 
account in every agreement for the payment of 
wages. Thus, on the one hand, the employee who 
is working on time wages is expected by his em- 
ployer to turn out in a given time not less than a 
more or less specifically agreed upon quantity of 
work — "to do a fair day's work" — while, on the 



132 THE SETTLEMENT OF WAGE DISPUTES 

other hand, a list of piece-wage rates usually has 
an implied, and in some cases has an explicit, ref- 
erence to the amount of money which can be 
earned by a man working under the list in a giveir 
time." x 

The principle of standardization can and does 
find expression under either method of wage pay- 
ment ; its adoption does not exclude the system of 
payment by results. The terms of all such sys- 
tems, however, should be made the subject of 
collective agreement. In that way the group 
interest in a defined minimum standard wage is 
protected, and the principle of standardization 
realized. As Prof. Pigou has written, "In order 
that the piece-wage system, and the benefit to pro- 
duction which it carries with it, may win further 
ground, what is required is to develop in these 
more difficult industries an adequate machinery 
for subordinating piece-wages, ... to the full 
control of collective bargaining." 2 

5. — Such then, being the leading characteristics 
of the standard wage, what results can be pre- 
dicted for an attempt to introduce it throughout 
industry? 

During the decades which witnessed the intro- 
duction of wage standardization into industry in 



1 Report on Collective Agreements in the United Kingdom 
(1910) (CD 5366), page xiv. 

2 A. C. Pigou, "Economics of Welfare," page 441. 



THE STANDARD WAGE 133 

the United States, the most loudly expressed 
anxiety was in regard to its conceived effect upon 
individual independence and initiative. This 
question cannot be satisfactorily discussed apart 
from the larger one of which it is a part — that is 
the question of the influence of labor organization 
upon individual behavior. A few observations 
may be ventured with the explicit admission that 
they leave many sides of the question untouched. 
The "common rule" has come into operation 
only where the ground has been prepared for it, 
where there has been a growth of group conscious- 
ness and unity. Under such conditions its use 
and observance mould individual ambitions and 
actions in some measure. It is a device which at- 
taches the individual to the group, and interests 
the individual in the group advancement more 
than he otherwise would be. On the other hand, it 
indirectly guards for the individual an inde- 
pendence and vigor of spirit often lost in modern 
industry. When the underlying philosophy of 
the "common rule" is deeply ingrained the prob- 
lems of industrial direction are completely 
changed; they become more difficult. Production 
becomes a task involving the power to win men to 
their work. Where the ethics of the common 
rule are accepted, effective work on the part 
of wage earners depends upon interesting them as 
a group in their work. The usefulness of wage 
systems which aim to increase individual pro- 
duction through individual reward is not neces- 



134 THE SETTLEMENT OF WAGE DISPUTES 

sarily at an end. But all such systems are com- 
pelled to accommodate themselves to the wide- 
spread desire for a standard group minimum. 

6. — Another question to which the introduction 
of the standard wage gives rise is that of its effect 
upon the distribution of the available employment 
among the members of the group to which the 
wage applies. This question should be distin- 
guished from that of its possible effect on the total 
amount of employment. It has often been con- 
tended that the multiplicity of wage rates for ap- 
proximately the same work in industries in which 
wages are not settled by collective bargaining, is 
to be accounted for, above all, by the varying effi- 
ciency of individual wage earners. And, there- 
fore, it is argued, that any attempt to standardize 
wages must lead to a concentration of employment 
upon those members of the group who are the 
more efficient, and must deprive the relatively less 
efficient of their employment. 

It is almost impossible to say, except for con- 
crete situations, to what extent irregularity 
of wage rates is due to differences in individual 
efficiency and to what extent to other causes. Such 
factors as differences in bargaining power, differ- 
ences in the policy or efficiency of the employers, 
slight differences in the character of the work per- 
formed, local differences in the supply and demand 
situation for the type of labor in question, and the 
like, certainly account for a great many of the ir- 



THE STANDARD WAGE 135 

regularities. Prof. Marshall has expressed one 
view of the matter well. He writes, "Cliffe Leslie 
and some other writers have naively laid stress on 
local variations of wages as tending to prove that 
there is little mobility among the working classes, 
and that competition among them for employ- 
ment is ineffective. But most of the facts they 
quote . . . are only half facts and when the miss- 
ing halves are supplied, they generally support 
the opposite inference to that on behalf of which 
they are quoted." 1 In R. R. Tawney's study of 
"Minimum Rates in the Tailoring Industry" 
(Great Britain) a vigorous statement of the op- 
posite view is given. He writes, "The wages paid 
to a group of workers in a given industry and a 
given area depend, in fact, very' often not on the 
conditions obtaining in that industry in other 
areas, but on the conditions obtaining in that area 
in other industries. 2 

It can be affirmed that the irregularity of wages 
is due to a considerable extent to other causes than 
differences in the efficiency of individuals. As D. 
A. McCabe writes, "Very little seems to be known 
as to differences of efficiency among men engaged 
in the same kind of work." But as he adds, "It is 
safe to assume, however, that they are not re- 

1 A. Marshall, "Principles of Economics" (7th Ed.), page 
548. 

2 R. H. Tawney, "Minimum Rates in the Tailoring Indus- 
try" (Great Britain), pages 110-111. See for similar view, 
4th Report of N. Y. State Factory Investigating Commission, 
Vol. V (1915), testimony of Miss Van Kleeck. 



136 THE SETTLEMENT OF WAGE DISPUTES 

fleeted in time-working trades with any exactness 
by the wages paid, even where there is no trade 
union minimum." 1 

More to the point, it can be affirmed that the 
percentage of individuals in any occupation whose 
efficiency is decidedly below the average efficiency 
of the group is small. For, as a matter of fact, 
what really comes into question upon the intro- 
duction of wage standardization, is the employ- 
ment of that small percentage of individuals 
whose efficiency is decidedly below that of group 
average. The employment of this small percent- 
age in each group will be decisively affected by the 
general demand and supply situation of that 
group at the time when standardization is intro- 
duced. If the need for the services of a group is 
relatively great, employment at the standard rate 
will be given even to those members of the group 
who are decidedly below the average efficiency of 
the group. Such is the case during periods of in- 
dustrial expansion. When the demand for the 
services of the group falls, however, it is probable 
that these men will be discharged first — more 
promptly than if wage standardization had 
not been introduced. There is probably some 
connection between the progress of the standard 
wage movement and the tendency to limit over- 
time in the industries ill which the standard wage 
is enforced. Lastly, the effect of the enforcement 

1 D. A. McCabc, "The Standard Rate in American Trade 
Unions," page 14. 



THE STANDARD WAGE 137 

of wage standardization upon the employment of 
the least efficient members of the group can be 
modified by special arrangements, whereby a wage 
lower than the standard is set for such individuals 
as are mutually acknowledged to be decidedly be- 
low the average of the group. 

In this regard Mr. Collier's report on the 
Australasian experience is a useful guide. He 
writes: "That workers may be displaced following 
the application of wage regulation to an industry 
is a fact sustained by the experience of Australasia. 
In New Zealand, many bona fide workers were 
thrown out of employment during the early years 
of the arbitration law. There was also consider- 
able distress among the boot and clothing workers 
of Victoria. Many of the old, inefficient, and slow 
workers were discharged. But in each case other 
factors than labor legislation figured in the situa- 
tion. We have seen that in the board trades of 
Victoria there has frequently been a decrease in 
the number of employees immediately after a 
determination became effective, but that in almost 
every instance this decline was temporary. After 
the period of adjustment, industry pursued its 
normal course. This seems to have been the gen- 
eral experience in this and other states." x It may 
be concluded that some redistribution of available 
employment will sometimes follow upon the intro- 

a P. S. Collier, "Minimum Wage Legislation in Australasia," 
Fourth Report of the Factory Investigation Commission, 
N. Y. State, 1915, page 8243. 



138 THE SETTLEMENT OF WAGE DISPUTES 

duction of the standard wage into industries in 
which wages were hitherto unstandardized, re- 
sulting in the partial or complete unemployment 
of the least efficient members of the group. As 
was said above, the extent of such redistribution 
will depend somewhat upon the demand and 
supply situation at the time when the standard 
wage is introduced. Those whose employment is 
reduced or taken away will either go into some 
work on which they compare more favorably with 
the other workers engaged, (leading to a further 
redistribution of employment perhaps), or will 
remain unemployed. The other members of the 
group will have increased employment. 

7. — Still another possible effect of the introduc- 
tion of the standard wage deserving of attention, 
is that which it may have upon industrial or- 
ganization, and upon the level of managerial 
ability. As will be made clearer elsewhere, the 
enforcement of standard wage rates in an in- 
dustry is usually equivalent in practice to the en- 
forcement of those rates that are already being 
paid by the better organized units of that in- 
dustry. 1 This leveling process may have any or 
all of several consequences. It may cause enter- 
prises which had succeeded in competing partly 
because they paid lower wages than more efficient 
enterprises for the same grade of labor either to 
improve their productive methods, or gradually 

'See pages 172-5, Chapter VIII. 



THE STANDARD WAGE 139 

to cease production. It may result in a reduction 
of profit for certain enterprises. It may occasion 
an increase in the price of the commodities pro- 
duced. It may result in an increase in the pro- 
ductive efforts of the wage earners. 

In the abstract, it is impossible to balance these 
various possibilities with complete assurance. 
The only inductive studies of value which give 
any indication of the probable result are those 
which have been made upon the results of living 
wage legislation. These, almost without excep- 
tion, make the price increase resulting from 
standardization, inconsiderable. 1 They are wit- 
ness to the fact that improvements in the level of 
industrial management and a gradual elimination 
of the less competent employers have frequently 
taken place. The opinion seems warranted that 
unless standardization is introduced under very 
unfavorable circumstances or in the form of an 
extremely violent upward movement, it will not 
cause a considerable or permanent rise of prices, 
but will rather bring improvement in industrial 
organization and lead to a more intelligent use of 
labor in industry. Along with this, there is reason 
to hope that it will have a favorable reaction on 
the efforts of the wage earners. 

1 See for examples, the reports of the Minimum Wage Com- 
missions of The District of Columbia, Massachusetts and Ore- 
gon. Also the studies by R. H. Tawney and M. E. Bulkely 
on the English experience. Those of P. S. Collier and M. B. 
Hammond, on the Australasian experience. 



140 THE SETTLEMENT OF WAGE DISPUTES 

8. — The whole subject of the effect of wage 
standardization upon the output of the wage 
earners remains to be considered, however. It is 
an aspect of the subject which has been in the 
forefront of discussion. It also is a topic which 
cannot be satisfactorily discussed apart from a 
larger one — that of the effect of unionism upon 
production. 

The most bitter opposition to trade unionism 
has been connected with allegations made in this 
regard. These have taken different forms, but 
they almost always express one contention. That 
is that if a standard wage is set for work of a given 
kind, and if all men engaged upon that work re- 
ceive that wage irrespective of small differences 
in ability, there will remain no stimulus for the 
abler workmen to exert themselves. Or in other 
words, that the standard wage makes slackers of 
all men. Sometimes this criticism is leveled only 
against the standard time wage; at other times 
against the standard guaranteed minimum wage, 
such as there used to be in the English coal fields; 
and, at still other times, against any method of 
wage payment which takes full power out of the 
hands of the employers to make an individual 
wage bargain with each worker. 

These contentions have some basis on oc- 
casion. More often they arise from a misconcep- 
tion of the place of the wage earner in industry, 
or from a general hostility to labor unionism. 
Wage standardization does not mean that all wage 



THE STANDARD WAGE 141 

earners receive the same wage irrespective of dif- 
ferences in ability. It simply sets a minimum 
standard for all workers of the group who are 
about the average in ability. It is designed to end 
all differences in remuneration, save those which 
arise out of differences in ability. It may be 
worked out in systems of payment by results, as 
well as in systems of time payment. 

In reality a deeper conflict lies behind the an- 
tagonism to the standard wage — a conflict of 
social philosophy. Most unionists, it will be ob- 
served, are inclined to wave away all criticisms 
of the standard wage which rest upon its alleged 
effect upon output, no matter what the situation 
to which it may be addressed. In their opinion, 
these criticisms of the standard wage are based on 
a misconception of the place of the wage earner in 
industry. Or, as it is frequently put, they regard 
the worker in the same way as they do a machine, 
since they would have each worker paid solely ac- 
cording to his individual value to the industrial 
system. There exists a conflict between two 
views of the nature of industrial society, and of the 
way of industrial progress. In one the social im- 
portance of a high level of production predomi- 
nates, and the wage earner is argued about merely 
as part of a productive organization. In the 
other, the wage earner is viewed primarily as a 
member of an occupational group or class, whose 
wages should be regulated by the standard of life 
of his group or class, rather than by strict measure- 



142 THE SETTLEMENT OF WAGE DISPUTES 

ment of his own individual capacity. This con- 
flict is revealed, as R. F. Hoxie pointed out, in 
the antagonism between unionism and scientific 
management. To quote "much of the misunder- 
standing and controversy between scientific man- 
agement and unionism . . . results from the fact, 
that scientific management argues in terms of the 
individual worker or society as a whole, while the 
unions argue primarily in terms of group wel- 
fare." It is well to recognize these different phi- 
losophies. Is it possible to find common ground 
under the principle of standardization? Can the 
desire of the wage earners to be viewed primarily 
as members of occupational groups or classes be 
satisfied by the enforcement of standardization, 
without ignoring the need for a high level of pro- 
duction. 

It is usual to seek the common ground in the 
development of some variation of a system of dif- 
ferential time wages, or of a system of payment 
by results on the basis of a standardized price list. 
And certainly such ways of enforcing standardiza- 
tion, while at the same time giving special reward 
to individuals, deserve encouragement, provided 
they safeguard the group interest in a defined 
minimum standard wage. Still it is not likely that 
the solution for the problems of output that may 
arise as a consequence of the enforcement of the 
principle of standardization, and of the acceptance 
of the philosophy to which it corresponds, is to be 



THE STANDARD WAGE 143 

found in the evolution of such methods of wage 
payment as these. 

For, as was observed above, if the philosophy of 
unionism is deeply implanted in the minds of the 
workers, the productive results under all methods 
of wage payment tend to be controlled in the end 
by the same influences. The views and motives 
of the wage earners and of the employers are likely 
to remain constant under different systems of 
wage payment — and thus the outcome is not likely 
to differ greatly. No matter what the method of 
wage payment, the question of output will be 
largely one of mutual confidence, of tact, and of 
fair dealing. It must be so in any arrangement, 
by which two or more groups mutually regulate 
their claims and desires. 

The conclusion that may be drawn as to the ef- 
fect upon production of the enforcement of wage 
standardization is as follows. That its results 
may depend to some extent upon the success with 
which the principle can be adopted to those 
methods of wage payment under which wages are 
varied in accordance with small differences in in- 
unionism, and act accordingly, the system of wage 
earners believe heartily in the ideals and aims of 
unionism, and act accordingly, the system of wage 
payment adopted will be a factor of secondary 
importance in determining the effectiveness with 
which the wage earners perform their work. The 



144 THE SETTLEMENT OF WAGE DISPUTES 

motives and sentiments of the various organized 
groups will govern the action of the wage earners, 
and produce almost the same result under any 
system of wage payment. The state of industrial 
relations, the satisfaction the workers feel in their 
position, the reasonableness shown by the different 
groups, the intelligence or ignorance of labor 
leadership — these and similar other factors will, 
at bottom, govern the effort put forth by the wage 
earners. These are the matters to which all who 
realize the need for steady and willing effort in 
production will have to attend. 

The problem of maintaining a high level of pro- 
duction will be primarily one of developing the 
practice of open-handed and thoroughly under- 
stood negotiation between the directors of in- 
dustry and the workmen. Barring the develop- 
ment of the practice of successful negotiation 
either industrial chaos or a return to individual 
bargaining must result. 

9. — There is one other possible result of the en- 
forcement of wage standardization which requires 
brief notice, because it was displayed prominently 
during the war. The demand during the war for 
certain essentials of warfare was abnormally great, 
and the result was a steady bidding up of wages 
for the supply of labor which could assist in the 
production of these essentials. This led to a con- 
stant shifting about of the wage earners from plant 
to plant. This movement not only hindered the 



THE STANDARD WAGE 145 

effective organization of production, but also 
caused a considerable loss of working time, and 
fostered a continuous pre-occupation with the 
question of wages and related questions. In view 
of these facts, the various governmental agencies 
of wage settlement undertook to introduce into all 
wage contracts the principle of standardization 
throughout large areas. Witness, for example, 
the conclusion of the Shipbuilding Adjustment 
Board on the matter. "One of the most serious 
influences retarding the progress of the shipbuild- 
ing industry according to the unanimous testi- 
mony of the yard owners, and of the district offi- 
cers of the Fleet Corporation who have come be- 
fore us, is the shifting of men from yard to yard. 
. . . The only effective way to stop it is to remove 
its inciting cause, the variable wage rates paid by 
different yards in the same competitive region. 
With this purpose in view, we have sought in all 
our hearings to determine with accuracy the limits 
of each competitive region, so that we might ex- 
tend over it a uniform wage scale for shipyard em- 
ployees. . . ." * 

The enforcement of wage standardization may 
serve to prevent wasteful shifting of the labor 

1 Decision as to wages, etc., in North Atlantic & Hudson 
River Shipyards, Shipbuilding Adjustment Board, reported in 
U. S. Monthly Labor Review, May, 1918, page 136. See m 
same issue of the review, "Decision for Shipyards of San Fran- 
cisco Bay and Columbia River, and Puget Sound Districts," 
pages 68-78. Also report of Benjamin M. Squires in the 
Monthly Labor Review, 1918, Sept., on the "New York Har- 
bor Wage Adjustments." 



146 THE SETTLEMENT OF WAGE DISPUTES 

supply even in normal times. Theoretically, it 
should serve to limit the shifting of the labor 
supply to movement between different industries 
and occupations, and to cases which represent 
movement of unemployed wage earners to points 
where work exists. There would be, of course, in- 
numerable cases of change based upon personal 
motives. 



CHAPTER VIII— THE STANDARD WAGE 

(Continued) 

Section 1. What variations or limitations should be intro- 
duced into the principle of standardization in view of 
the great area and economic diversity of the United 
States? — Section 2. Differences in natural or acquired 
advantage between different enterprises as a reason for 
modification and limitation of the principle. — Section 3. 
Differences in the character of the work performed by 
any large group of wage earners as a reason. — Section 4. 
Differences in the cost of living at different points within 
the area of standardization as a reason. — Section 5. The 
grounds for "nominal variations" in standard wage rates. 
The policy to be pursued in regard to payment for ir- 
regular employment. — Section 6. The possibility of main- 
taining standard wage rates over a large and diversified 
area considered. — Section 7. Up to the present, the prog- 
ress of standardization has not proceeded in accordance 
with reasoned conclusions as to the results produced. — 
Section 8. Where should level of standardization be set? 
The doctrine of "standardization upward." — Section 9. 
The importance of the principle of standardization in 
wage settlement. 

1. — We have now completed our analysis of the 
general effects to be expected from the enforce- 
ment of wage standardization throughout in- 
dustry. That analysis was carried out on the 
underlying assumption that the general economic 
position of the industrial enterprises which would 
be included within any area of standardization 
was substantially alike. That assumption must 

147 



148 THE SETTLEMENT OF WAGE DISPUTES 

now be given up. A further question must be 
faced. That is whether the principle of standard- 
ization, as put forward up to this point, should be 
limited or varied in any way because it would have 
to apply, as a matter of fact, to an area so great 
and so diversified in economic character as the 
United States, and to an industrial situation 
which is the product of a great number of separate 
impulses, and which is made up of a vast number 
of separate interests. 

2. — We will consider in order the grounds upon 
which limitation or variation of the principle of 
standardization has been argued for in the past — 
limiting ourselves, as we must, to the most im- 
portant. The first that may be taken up has 
arisen almost every time that wage standardiza- 
tion has been introduced into a craft or industry. 
It is the contention that, due to differences in 
natural or acquired advantage possessed by dif- 
ferent enterprises in the same industry, certain 
going enterprises will be forced to cease produc- 
tion, if all are compelled to pay the same wage 
rates for the same work. 1 

1 Thus, take the cautionary warning in the Report of Com- 
mission of Enquiry into Industrial Agreements (Great Brit- 
ain) upon the proposal to make collective agreements entered 
into by joint industrial councils compulsory upon all en- 
terprises engaged in the industry providing a certain major- 
ity (75 per cent was the suggestion) of work people and em- 
ployers in the industry or craft in question were represented 
in the council. "51 — Attention has been drawn to the fact 
that, in the establishment of a scheme for dealing with pro- 



THE STANDARD WAGE 149 

The weight of this contention must be decided 
in each case by the facts which support it. In 
some instances it may be clear that the vigorous 
and summary application of wage standardization 
would cause men to be thrown out of work, who 
could not easily find work elsewhere, and would 
make a considerable amount of fixed capital value- 
less or almost so. In those instances there would 
be reason for considering the extent to which the 
standardization should be carried out, and also 
what variations should be introduced into its ap- 
plication. That such cases are not infrequent is 
borne out by the Australasian experience of which 
Mr. Collier writes, "In regard to the practicability 
of the common rule, opinion differs. In some 
staple industries such as coal mining, it has been 
said to operate fairly. But its application to 
small industries and retail stores, where conditions 
vary more widely, is fraught with considerable 
risk and is proceeded with slowly. . . . While the 
power to enforce industrial conditions throughout 
a state or given territory is of unquestionable 

posals for extension of agreements, it would be necessary to 
provide for exceptions to be made in regard to individual 
firms or work people whose conditions of trade or employment 
were such as to differentiate them from the remainder of the 
trade to such an extent as to make the application of the 
agreement to them an inequitable proceeding." CD 6953, 
1913, page 14. 

A bill embodying a clause providing for such a scheme for 
extension was proposed by the government in 1919 in re- 
turn for certain concessions from the trade unions, but was 
withdrawn when the parliamentary labor leaders would not 
agree to the concessions. 



150 THE SETTLEMENT OF WAGE DISPUTES 

value, experience shows it must be exercised with 
caution." * 

The test to be applied in each instance should 
be the balance of interest involved, including a 
strong public interest in standardization as one of 
the elements in a policy of wage settlement. When 
weighing the facts for or against the limitation or 
variation for the reason under discussion, several 
distinctions should be made. Firstly, in regard to 
the nature of the difference in advantage possessed 
by the various units of the industry in question. 
Secondly, in regard to the way in which the dif- 
ferences in advantage are distributed among the 
various units of the industry. 

The case for limitation or variation is apt to be 
stronger when the difference in advantage is a 
natural difference than when it is an acquired dif- 
ference. In either case, the decision must rest 
upon the balance of good and harm to be antici- 
pated from a straight-forward and unmodified ap- 
plication of the principle. But when the differ- 
ence in advantage is a natural difference, such as 
exists between different mining areas, there is 
greater reason for deliberate procedure than other- 
wise. For the possibility that an abrupt suspen- 
sion of certain enterprises be caused without com- 
pensating extension of other enterprises, is the 
more genuine. Such a situation was recognized, 
for example, in the case of the living wage legisla- 

1 P. S. Collier, Appendix VIII, 4th Report New York State 
Factory Investigating Commission, 1915, page 2113. 



THE STANDARD WAGE 151 

tion for agriculture in England ; and thus instead 
of applying one standard wage throughout all 
districts, standardization was carried out by dis- 
tricts. 1 Even in this case, however, the various 
district advisory boards are under a strong and 
constant pressure (under the terms of the act) to . 
bring the rates in the various districts to the same 
level. Such, also, to take another example was the 
situation recognized in the course of the attempt 
during the war to standardize the wages of the 
stevedores and longshoremen employed in the 
South Atlantic ports. Here straightforward and 
unmodified standardization would have caused, it 
was judged, the diversion of certain freight carry- 
ing steamship lines from ports in which they now 
operate. 

If the differences in advantage are in the nature 
of acquired differences, only convincing evidence 
of the permanent harm likely to result from gen- 

1 Much interesting material bearing on the question of 
district vs. national standardization is to be found in the re- 
port of the Commission on "Wages and Conditions of Em- 
ployment in Agriculture" (Great Britain), 1919. An inter- 
esting bit of evidence was given by a farmer from Devon- 
shire who was of the opinion "that the sticky nature of the 
ground in Essex induced a slow habit of moving, and he 
thought the Essex workmen did as much as could be expected 
in view of the labor involved in walking on wet land, during 
a large part of the year." Page 73. There is also much in- 
teresting material on the subject in the report of the Court 
of Inquiry into the "Wages and Conditions of Employment 
of Dock Labor" (Great Britain), 1920. The same problem 
has arisen, of course, many times in the course of trade union 
negotiations — for example, in the coal mines and railroads 
of the United States. 



152 THE SETTLEMENT OF WAGE DISPUTES 

eral standardization would justify limitation or 
variation. For in this case, the necessity of pay- 
ing standard wage rates is itself a powerful force 
towards overcoming conditions that have been 
declared a definite competitive disadvantage. 
Probably no extension of wage standardization in 
industry has ever taken place without injuring 
some individuals. It is the net balance of gain or 
loss that is significant. In most past instances 
when standardization has been enforced in an in- 
dustry, marked by an unequal distribution of ac- 
quired advantages, the consequences have not 
verified the predictions of those who believed it 
would cause great disturbance and unemploy- 
ment. On the contrary, it has frequently resulted 
in the development of better organization within 
the industry. 

Again, the case for the limitation or variation is 
apt to be the stronger, when the difference in ad- 
vantage is between concentrated but widely 
separated areas, such as might exist between two 
ports, for example, than when the differences are 
between different units in the same industrial area 
or field. For in the second case, the possibility 
of causing lasting unemployment would be less. 
The distinction, however, is entirely one of degree. 

Whatever limitations or variations are admitted 
should not be settled arbitrarily ; they should cor- 
respond to the facts which make them advisable. 
The union attitude in respect to the extension of 
wage standardization is sometimes as cautious as 



THE STANDARD WAGE 153 

that of the employers. That is because those 
workers employed at the points which are sup- 
posed to possess the smaller advantages, natural 
or acquired, are not likely to support an unmodi- 
fied application of the principle of standardization, 
unless they believe the consequent industrial 
changes will be beneficial, or at least not harmful, 
to themselves. The advice, if not the concurrence, 
of all interested parties is of the greatest value in 
arriving at a satisfactory determination. A good 
example of such an arrangement is to be found in 
the agricultural living wage legislation in Great 
Britain. It is provided therein that "When a dis- 
trict committee has been established for any area, 
it shall be the duty of the Committee to recom- 
mend to the Agricultural Wages Board, minimum 
rates of wages fixed under this act, and no varia- 
tion or cancellation of such a rate shall have effect 
within that area unless . . . recommended by the 
district wages committee." x 

3. — Another possible ground for limitation or 
variation of the principle of standardization is set 
forth often in the contention that the character of 
the work performed by any large group of wage 
earners is not the same throughout the field of its 
employment. Such, for example, was the argu- 
ment of the directors of the American railways, as 
summarized by Mr. Stockett: ". . . The railways 

"Section 12 (4), Trades Board Act, 1909, Restated in the 
Corn Production Act, 1917. 



154 THE SETTLEMENT OF WAGE DISPUTES 

oppose district standardization on the ground that 
rates cannot be disassociated from conditions and 
since conditions vary widely on different roads in 
such extensive territories as the railway districts 
they maintain that rates cannot be made uni- 
formly applicable on all the roads. The amount 
of compensation, the roads hold, is governed by 
the labor performed, the skill and efficiency re- 
quired, the responsibility and hazard involved, the 
discipline necessary, the rapidity of promotion, 
and the cost of living." * 

It is plain that the point of view which inspires 
the above argument is at variance with the beliefs 
that are behind the movement for wage standard- 
ization. The argument accords no validity to the 
belief that group unity and group aims deserve 
recognition in the settlement of wages. The doc- 
trine of standardization on the contrary represents 
this belief, and sets groups standards above the 
existence of minor difference in the work per- 
formed by the group. The practical consequences 
of any wage policy which gave full recognition to 
these minor differences must also be weighed. 
These have been vigorously stated, for the case of 
railway labor, by Mr. Stockett. ". . . The em- 
ployees maintain that the varying physical and 
traffic conditions in the different roads should not 
constitute a basis for the payment of various rates. 
It may be true, they hold, that physical conditions 
and traffic peculiarities differ as between different 

*J. N. Stockett, Jr., "Arbitral Determination of Railway 
Wages," page 23. 



THE STANDARD WAGE 155 

roads, but it would be impossible to determine a 
separate rate of pay for each special condition. In 
the course of development of the railways con- 
ditions are always changing. Grades may be 
leveled, additional tracks laid, curves straight- 
ened, passenger and freight densities may differ 
from year to year and from day to day. The at- 
tempt to determine the proper rates for each dif- 
ferent condition and to change them as conditions 
change, the employees assert, is obviously absurd. 
The plan of fixing a standard rate governing an 
entire district may be illogical and its basis ar- 
bitrary, but it is deemed the best devised and does 
substantial justice in a broader sense than any 
other system." 1 

Cases may arise, indeed, where the difference in 
the character of the work performed really means 
that the same name covers two relatively distinct 
occupations, and two or more quite different 
classes of wage earners. Such cases are probably 
rare. In circumstances where the constant dif- 
ferences between the character of the work per- 
formed by workers is relatively great, it will 
usually be found that they are distinguished into 
different groups. 2 It is a question of degree, of 
course. And if the existing distinctions do not fit 
the facts, those distinctions should be changed. 3 

*J. N. Stockett, Jr., "The Arbitral Determination of Rail- 
way Wages," page 21. 

2 See D. A, McCabe, "The Standard Rate in American 
Trade Unions/' pages 82-91. 

3 For example, see the recommendations of the Interstate 
Commission regarding classification of railroad employees. 
U. S. Monthly Bulletin of Labor, Nov., 1915. 



156 THE SETTLEMENT OF WAGE DISPUTES 

In unorganized industries, it will sometimes be 
found that the classification of occupations is 
very defective. If wage standardization were to 
be introduced into those industries, it would be 
found necessary to standardize occupations first. 
Such was the task undertaken, for example, by the 
War Labor Board in the Worthington Pump and 
Machinery case. 1 

4. — A third possible ground for limitation or 
variation of the principle of standardization is the 
existence of differences in the cost of living in the 
various main centers or regions to which a stand- 
ard rate might be applied. Such variation would 
be represented, for example, by a collective agree- 
ment in accordance with which the wage scale at 
different points was varied in accordance with the 
relative cost of living at these points. Up to the 
present there has been a tendency to disregard 
differences in the cost of living when wage stand- 
ardization has been extended. No constant ten- 
dency, for example, can be found in the agreements 
made by different local branches of the same na- 
tional trade union to build up a wage scale in ac- 
cordance with differences in the cost of living at 
different points. 2 

1 Decision in Re Employees vs. Worthington Pump and 
Machinery Corp., Docket No. 163, National War Labor 
Board; see also decision in the Corn Products Case. 

2 For a recent statistical study of the subject see an article 
by Ogburn and Kelley in the Journal of the American Statis- 
tical Ass'n. for September, 1916. 



THE STANDARD WAGE 157 

The most complete body of material on the sub- 
ject is contained in the report of the Investigating 
Commission of the Board of Trade (Great 
Britain) on Working Class Rents, etc., in the 
United States (1911). This commission studied 
the wage schedules of skilled men in the building, 
engineering and printing trades in twenty-eight of 
the large cities of the United States and compared 
these wage schedules with the calculated cost of 
food and rent in these towns — weighing food three 
times as heavily as rent. The results are pre- 
sented by single cities, by geographical groups, and 
by population groups — i.e., cities grouped in ac- 
cordance with size of population. Real wages 
tended to be more equal as between population 
groups than between geographical groups. The 
range of the index number between geographical 
groups is from 85 to 104 (New York is taken as 
100) ; between population groups from 89 to 100 
(New York, 100). They reveal a tendency for 
money wages and living costs to be high in the 
largest cities, and for both money wages and liv- 
ing costs to decline in the cities making up the 
smaller population groups. No correlation can be 
found between living costs and money wages as 
between individual cities, however. 

The argument for variation or limitation be- 
cause of differences in the cost of living is a two- 
fold one. Firstly, it may be argued that such a 
policy is calculated to maintain industrial activity 
in the smaller centers, where the cost of living is 



158 THE SETTLEMENT OF WAGE DISPUTES 

usually lower, in the face of the competition of the 
larger centers, in which the cost of living is usually 
higher. Secondly, it may be argued, that varia- 
tions in the cost of living at different places are in- 
dications of the fact that at some places the eco- 
nomic essentials can be procured with a smaller 
expenditure of human labor and capital than at 
other places (since labor and capital can move be- 
tween them) and, therefore, it is to the general 
interest to encourage industrial development at 
the points where the cost of living is relatively low. 

As to the first argument, it seems to me that 
there is considerable wisdom in the wish to en- 
courage a diffusion of industrial development, 
rather than concentration at a few points. The 
strain on the social and political structure of the 
nation would be less, to-day, if our industrial 
population were more widely distributed ; and our 
problems of civic and economic life would be 
simpler. That I believe to be true, although it is 
probable that the wage earners in New York City 
are better governed, have more freedom, and en- 
joy a healthier and more stimulating environment 
than the wage earners in the smaller industrial 
towns of Massachusetts or Pennsylvania, for ex- 
ample. 

As to the second argument, it is true that differ- 
ences in the cost of living do indicate that the es- 
sentials of economic life can be procured with a 
smaller expenditure of human labor and capital at 
some places than at others. There is a further 
question, however. Does not the ability of the 



THE STANDARD WAGE 159 

enterprises established at the places where the 
cost of living is relatively high, to compete with 
the others, denote a compensating advantage in 
another stage of production? The answer de- 
pends on two conditions. Are the enterprises in 
genuine competition with each other? And 
secondly, do wages at the several places differ in 
correspondence with the differences in the cost of 
living? To the extent that these conditions hold 
true, any shift of industry away from the points 
where the cost of living is low, as a result of wage 
standardization, would not be uneconomical — in 
the sense of this argument. For then, the ability 
of the enterprises established at the points where 
the cost of living was relatively high to compete 
with the others would indicate that they benefited 
by some compensating advantage in their location. 

Still another matter to be noted is that if differ- 
ences in the cost of living are recognized in the en- 
forcement of standardization, there will be some 
tendency for the abler and more energetic work- 
men to drift to the points where money wages are 
higher. This movement is likely to occur even 
though real wages are the same at the different 
places. 

In addition to these theoretical considerations, 
one practical matter should be called to mind. 
The relative scale of the cost of living at the differ- 
ent points to which a standard wage might be ap- 
plied does not usually remain fixed over a con- 
siderable period. Small changes and shifts in the 
relative scale occur constantly, and even large 



160 THE SETTLEMENT OF WAGE DISPUTES 

changes may take place within a short time. Ex- 
perience has shown that wage differences which 
rest upon a fluctuating basis are apt to give rise to 
misunderstanding, and to be provocative of un- 
rest. At best, only the relatively permanent and 
great differences in the cost of living between dif- 
ferent points could be taken into consideration. 
Even then a great deal of arbitrary calculation 
might be involved. 

In view of the variety of considerations that 
bear upon the problem, only a tentative conclu- 
sion will be ventured. Namely, that when in any 
industry the wage scales prior to standardization 
do reflect the differences in the cost of living 
at the different centers in which the industry is 
carried on, such differences should be maintained. 
As has been remarked, only the relatively large 
and permanent differences could be taken into ac- 
count. When, however, no such differences in 
wage scales is found prior to standardization, it 
will probably be inadvisable to introduce them, in 
order to encourage a wider geographical diffusion 
of industry. 1 

5. — There is yet another ground for limitation 
or variation of the principle of standardization. 

ir The Commonwealth Court of Australia, while setting up 
as an ideal "uniform rates all around Australia" (see The Case 
of the Federated Storemen and Packers' Union, page 150, 
Vol. X, Commonwealth Arbitration Reports), has frequently 
awarded a different basic minmum wage for different cities 
within the commonwealth. 



THE STANDARD WAGE 161 

It is of a somewhat different character than those 
already considered. It is that in order to carry out 
the underlying idea of standardization — equal re- 
muneration for the same type of work despite 
minor differences in conditions under which it is 
performed — it is necessary to introduce variations 
into the hourly or daily time rates (or equivalent 
piece-work schedules) paid in various sections of 
the industry. Such variations have been desig- 
nated as "nominal variations" in the Australian 
courts. 

Distinctions may be drawn between different 
types of these so-called "nominal variations" ac- 
cording to the cause by which they are occasioned. 
The first type is that which rests on the fact that 
in certain trades or industries, it is extremely diffi- 
cult or impossible to make the conditions of work 
even approximately uniform throughout the trade 
or industry. Agricultural work and coal mining 
may be cited as examples. In such trades or in- 
dustries it is usually found that the principle of 
standardization can only be carried out satisfac- 
torily under a system of time payment. For under 
a piecework system a uniform scale of rates yields 
widely different earnings for labor of approxi- 
mately the same type and quality. It may be, 
however, that a time-work system is ill suited to 
the trades or industries in question. In which 
case, the only alternative is to draw up different 
piece-work scales for different conditions of work. 
Different scales of this sort are to be found in the 



162 THE SETTLEMENT OF WAGE DISPUTES 

American coal mines for example. Such "nom- 
inal variations" between piece-work scales would 
appear to be justified when the differences of con- 
ditions upon which they rest are judged to be not 
subject to standardization. To be really prac- 
ticable the differences of conditions should also be 
relatively great, fixed and measureable. 1 

The second type is that which rests upon some 
difference in the "net advantages" of the same 
work carried on in different sections of the in- 
dustry or occupation. For the purpose in hand, 
three sorts of difference in net advantage may be 
noted. The first sort would be represented by a 
claim for a higher rate than that stipulated in the 
general scale, because the work in question was 
carried on under conditions involving an unusual 
degree of disagreeableness or risk. In my opin- 
ion, "nominal variations" based on such differ- 
ences as these can safely be left to voluntary bar- 
gaining rather than enforced as a matter of policy. 
The conduct of almost any occupation involves 
differences in the conditions under which it is per- 
formed. Nobody entrusted with the duty of en- 
forcing a policy of wage settlement would find it 
easy to define the conditions which warranted an 
addition to the standard rate. It would run the 
risk of being involved in a process of refined de- 
finition which would probably be futile. Justice 

1 See D. A. McCabe, page 54, and 162-3 for a review of 
trade union policy in this matter, "The Standard Rate in 
American Trade Unions. " 



THE STANDARD WAGE 163 

Higgins stated this view aptly in a claim for 
"dirt" money. "My view," he writes, "is that 
the minimum rate of wages is not to be made to 
depend upon the degree of dirtiness of the work. A 
man must accept the conditions of the work to 
which he has devoted himself; and the court can- 
not be expected to define degrees of dirt or to ex- 
press them in terms of money wages. If the em- 
ployer puts the employee to work which is unnec- 
essarily dirty, the remedy is in prohibition or in 
regulation — not in increase of wages. My de- 
cision in no way prevents the employer and em- 
ployee from making a voluntary stipulation for 
dirt money in any particular case." 1 

A second sort of difference in net advantage 
would be represented by a request on the part of 
an employer that certain payments in kind should 
be considered as part of the wage. An example 
of this would be the provision of meals. Such 
variations would seem to be permissible when the 
acceptance of the payment in kind is left optional 
with the workmen. 

A third sort of difference in net advantage, and 
possibly the most important, is that represented 
by differences in the regularity of employment in 
different sections of a trade or industry. This 
type of difference is exemplified in the work of 
longshoremen and lumbermen; some men being 

1 Case of the Broken Hill Proprietary Company vs. Fed- 
erated Engine Drivers' and Foremen's Association of Aus- 
tralia. Pages 196-7 (Vol. X, Commonwealth Arbitration Re- 
ports) . 



164 THE SETTLEMENT OF WAGE DISPUTES 

engaged on one type of work are employed regu- 
larly, while men engaged on other jobs are em- 
ployed irregularly or casually. It is frequently 
claimed that irregular or casual work should be 
paid at higher rates than regular work. The 
justice of this claim seems apparent. Irregularity 
of work is undoubtedly a great handicap to the 
workman who seeks to maintain a well ordered 
life. Extra payment for irregularity of employ- 
ment is a burden which can fairly be put upon an 
industry, or section of an industry — even if the ir- 
regularity is unavoidable. Yet the consequences 
of such a policy of ''nominal variation" may be un- 
desirable. It has been revealed by experience 
that there are some workmen who prefer irregular 
or casual work to regular work. And if higher wage 
rates are paid for irregular work this preference 
— an undesirable one, from the point of view of 
the community — is apt to be strengthened. On 
the other hand, it is usually true that only a small 
percentage of workmen prefer casual work to 
regular work. Most men engage in casual work 
because they cannot secure regular work. 

As was well established in the Court of En- 
quiry on the work and wages of transport work- 
ers (Great Britain) held early in 1920, the only 
real solution of the difficulty is the reorganiz- 
ation of the occupation so that the irregular and 
casual work is reduced to a minimum. Until that 
is accomplished, it is probable that the most ad- 
visable policy is to grant "nominal variations" for 



THE STANDARD WAGE 165 

casual and irregular employment. These varia- 
tions should not be so great as to influence the run 
of workmen to prefer casual work. The total 
earnings from regular work should be higher. 
Another policy that may be practicable, in many 
cases, is to define a minimum period of employ- 
ment for all workmen engaged. 1 Such a policy 
puts strong pressure upon the industry to cut 
down irregularity of employment. Against such 
a policy stand the practical difficulties involved 
in determining the basis of any scheme of "nom- 
inal variations." 

The whole question is well surveyed in a deci- 
sion of the Commonwealth Court of Australia 
which reads in part as follows: "The casual hand, 
I propose to define as an employee who is not em- 
ployed for a fortnight continuously and who is not 
entitled to a week's notice before his employment 
is determined. A new light was thrown by the 
evidence in this case on the growing tendency of 
some men to depend on the high rates for casual 
work only, to enable them to work when they 
thought fit, and idle when they felt inclined. . . . 
The yearly return of so many seasonal hands for 

^Thus in one of its opinions the Kansas Court of Indus- 
trial Relations recommended that the flour mills in the state 
should pay their skilled men a monthly wage whether the 
mill is running or not, Docket 3803, Opinion regarding " con- 
tinuity of production in the flour-milling industry," 1920. In 
another case, however, the Court refused to order the pack- 
ing industries to guarantee a minimum amount of employ- 
ment each week to its employees. Docket 3926, Wolff Pack- 
ing Co., Case 1921. 



166 THE SETTLEMENT OF WAGE DISPUTES 

the wool and grain season, year after year, who 
look for casual work elsewhere in the meantime in 
shearing sheds — on the wharfs — in other indus- 
tries and even in the Government temporary ser- 
vice — and prefer casual work is not an encourag- 
ing sign. The higher rates paid for casual work 
do, and will, encourage many men to rely on that 
class of labor. I do not think that is good for the 
community or for the employee. I have been 
asked not to encourage the tendency to prefer 
casual labor by granting high rates for casual 
labor. 

"Although the rates for casual labor ought not 
be so high as to induce men to become casual la- 
borers, a higher rate must in fairness be allowed, 
where as in this industry, men, however anxious 
they may be to get permanent work, are not em- 
ployed for the whole season without a break, and 
many of them are only employed a short broken 
part of the season, and some are employed for a 
day or a few days only." x 

6. — In the examination of the reasons for and 
against limitation or variation of the principle of 
standardization, note must be taken of still one 
other argument of a somewhat different nature 

1 Case of "Federated Storemen and Packers' Union of Aus- 
tralia vs. Skin & Hide Merchants' Association of Brisbane," 
page 651, Vol. X, Commonwealth Arbitration Reports. For 
an example of difficulties to be expected, see the attempt made 
to set up such a scheme of nominal variations in the Salt 
Case, No. 1, "South Australian Industrial Reports," Vol. I, 
page 16. 



THE STANDARD WAGE 167 

than those already dealt with. That argument is 
that it will prove impossible to maintain uniform 
standard wage rates throughout an industry 
in which the various enterprises are distributed 
over a wide area; in the several parts of which 
area the cost of living, the general conditions of 
labor, and the demand and supply situation for 
labor differ considerably. 

This contention is supported by two different 
lines of reasoning. The first is that, because of 
these differences, there will tend to be a flow of 
labor away from the less favorable points of em- 
ployment within the area of standardization 
towards the more favorable. This flow, it is said, 
will cause a reappearance of the differentials which 
existed before standardization. The first comment 
to be made on this line of reasoning is explana- 
tory, rather than contradictory. It is true that 
there may be some tendency for labor to flow from 
the less favorable points to the more favorable. 
But it must be remembered that the standard 
wage is intended only as a minimum. If differen- 
tials over the standard wage did arise in enter- 
prises where the conditions of labor were worse 
than the average, or in regions where the cost of 
living was higher than the average, such differen- 
tials would not be incompatible with the ends 
sought, when standardization is enforced. Sec- 
ondly, it may be commented that the experience 
of the past does not, in general, support the con- 
tention. In many industries the same standard 



168 THE SETTLEMENT OF WAGE DISPUTES 

wage scale applies over an area in which there are 
real differences of the kind set forth above, and no 
differentials as between the different points with- 
in the area have arisen — as, for example, on the 
railroads. This is to be accounted for, firstly, by 
the influence of the idea of standardization over 
trade union activity and policy; secondly, by the 
fact that relative money wages tend to govern, 
in a great measure, the calculations and move- 
ments of the wage earners; thirdly, by the fact 
that the application of the principle of standardi- 
zation is in itself a strong force toward bringing 
about a leveling in the conditions of employment 
throughout an industry. 

The second line of reasoning with which this 
contention is supported is that the trade unions 
themselves will not long support any policy of 
standardization which does not make explicit al- 
lowances for such differences as are in question. 
It is said that the organization of the workers 
at the points where the cost of living was rela- 
tively high would insist upon a differential over 
other places for that reason. 

Such, for example, was the argument of the em- 
ployers' counsel before the Court of Inquiry on the 
wages of transport workers (Great Britain), 
". . . He submitted that one of the foundations 
of his argument was that in fixing wages they 
must have regard to the class of work. Having 
regard to the very great diversity of conditions and 
of methods in the different ports, and to the class 



THE STANDARD WAGE 169 

of work done, he submitted that they could not 
standardize. They must do in the case of the 
ports as they did in the case of the coal mines." * 

There is but one pertinent comment to be made 
upon this opinion. If the wage earners' organiza- 
tions, themselves, demand that variation be in- 
troduced into the policy of standardization, that 
demand should be granted. But it must be ob- 
served that these organizations must not give lip 
service to the application of the principle of 
standardization without variation, and once hav- 
ing secured it, make such a course impossible 
by demands for differentials over the uniform 
standard wage. In the face of such tactics, it will 
be impossible to maintain any definite policy of 
wage standardization. If the labor organizations 
desire the application of the principle of wage 
standardization without qualifications, they must 
be loyal to that desire, and they must not be 
swayed by small temporary advantages or by sec- 
tional interests. And, on the other hand, if they 
desire that the principle of standardization be ap- 
plied with qualifications, they must not attempt to 
disguise demands for general wage increases as 
standardization movements. Such a policy is cal- 
culated to perpetuate industrial conflict. Such is 
the bearing of the pledge given by the representa- 
tives of the transport workers (Great Britain) in- 
cidental to their claim for a 16 shilling national 
minimum daily wage. "I am conscious that what- 

1 London Times, Feb. 12, 1920. 



170 THE SETTLEMENT OF WAGE DISPUTES 

ever your decision may be, if the principle of the 
minimum be established, some people in some 
ports are going to get more on the first settlement 
than others. We have faced that, and we have 
discussed it with the whole of our men. It was 
assumed by the chairman of the employers at the 
previous meeting, to take a striking illustration, 
that if Liverpool received 12 shillings per day and 
Glasgow 14 shillings, if you decided on 16 shilling 
a day, Glasgow would say 18 shilling, 'because I 
was above Liverpool before/ That is not so, my 
Lord. That is clearly understood by every mem- 
ber of the federation in every port in the 
country." * 

7. — It may be hardly necessary to say, that up 
to the present, the various questions involved in 
the application of the principle of standardization 
in industry have not been settled by a careful 
study of the results produced. At the present 
time the manner in which the principle is applied 
is governed in the first instance, by the economic 
characteristics of the industry in question, and in 
the second instance by the area of influence of the 
various labor organizations, and by the degree of 
centralized control within each of them. 2 

One of the circumstances which has played a 
part in determining the area of standardization in 

1 Court of Inquiry into Wages of Dock Labour, etc., as re- 
ported in the Monthly Labor Review, U. S. Dept. of Labor, 
May, 1920, page 57. 

2 See D. A. McCabe, "The Standard Rate in American 
Trade Unions," page 143. 



THE STANDARD WAGE 171 

any industry is that success in the enforcement 
of collective agreements has depended largely 
upon whether all or most of the enterprises in 
competition with each other have been included 
in the same agreement. This circumstance has 
been sometimes decisive of the degree of central- 
ized authority in the various trade unions. It has 
also tended to govern the attitude of particular 
trade unions towards the application of the prin- 
ciple of standardization without variation or modi- 
fication. 1 The history of trade unionism is full of 
instances of organizations which have striven in 
vain to maintain uniform standardized wage rates 
throughout imperfectly organized areas. 2 Even 
when wage disputes have been settled by public 
agency, the usual procedure in the past has been 
to make the area covered by the agreement en- 
tirely dependent upon the area of dispute. 3 

For all of that there has been in recent years a 
steady drift towards an extension of the area of 
standardization. In various industries careful 
thought has been given to the possibility of stand- 
ardization on a national scale, though at present 
very few unions enforce such a scale. 4 On the 



*See D. A. McCabe, "The Standard Rate in American 
Trade Unions," page 183. 

2 For example, see "The Standard Rate in American Trade 
Unions," page 159. 

3 Such now seems to be the policy of the most recent ex- 
periment in wage settlement in the United States — the Court 
of Industrial Relations of Kansas. 

4 For a study of the influences which have governed the 
area of standardization in the United States, see Chapter 



172 THE SETTLEMENT OF WAGE DISPUTES 

railroads there are at present nation-wide wage 
scales. In Great Britain, to-day this is one of the 
most vexed of questions. Indeed Great Britain 
just has gone through a great coal strike in which 
it was one of the two great issues. The miners 
asked that "a levy be made upon each colliery 
company on every ton of coal raised to the sur- 
face to be used for ensuring the payment of wages 
agreed upon in a national wages settlement/' The 
miners argue, and correctly, that district settle- 
ments would give unequal reward to men doing 
precisely the same work, and called upon for the 
same service. 1 

8. — The introduction of standardization into 
crafts or industries in which a variety of wage 
rates for substantially the same tasks exist gives 
rise to one other difficult problem. That is the 
determination of the level of standardization for 
each occupation. 

It will be argued, at a later point, that under 
any economic system in which labor organization 
is an accepted part of the economic structure, the 
wage levels established in different industries or 
occupations will have to be brought into relation 
with each other. 2 If that is so, the level of 

III, especially page 120, etc., "The Standard Rate in Amer- 
ican Trade Unions," by D. A. McCabe; also article in the 
Quarterly Journal of Economics for 1912, pages 425-443. 

1 See the statement of Frank Hodges, Secretary of the 
Miners' Federation, in the London Observer, April 17, 1921. 

2 See Chapters X and XL 



THE STANDARD WAGE 173 

standardization of any industry or occupation 
would be determined in accordance with these 
principles, after they had been in operation for 
some time. As a matter of fact, however, under 
any policy of wage settlement, the enforcement of 
standardization will be something of an inde- 
pendent and prior process — prior, that is, to the 
application of any other principles intended to 
keep the wage levels in different industries or oc- 
cupations in relation to each other. Standardiza- 
tion will be, so to speak, an initial stage of policy 
to be gone through before any other stages are 
entered upon. In this initial stage, the principal 
data that should be taken into consideration when 
fixing the level of standardization for any occupa- 
tion is the actually existing variety of wage rates 
for that occupation. Where in the scale of 
actually existing rates the level of standardization 
is set must be a matter of judgment and com- 
promise. That level of standardization should be 
chosen, which it is believed will produce more 
good and less harm than any other level that might 
be chosen. Or in other words, the level of stand- 
ardization should be determined by a balance of 
the interests involved — that point being chosen at 
which, it is judged, the most favorable balance is 
established. 

There is current, indeed, one doctrine of stand- 
ardization which holds that there is but one satis- 
factory level of standardization for an occupation 
in which wages have been hitherto unstandard- 



174 THE SETTLEMENT OF WAGE DISPUTES 

ized. That doctrine, crudely stated, is that the 
standard wage for the work in question should be 
the highest of the unstandardized wages. 1 That 
doctrine is called "standardization upward." 

If the suggested test is sound, it cannot be ad- 
mitted that the doctrine of standardization up- 
ward is always valid. For there is no reason to 
believe that the level of the highest of the hitherto 
unstandardized rates is, of necessity, the one at 
which the most favorable balance of interests is 
established. In many cases there may be a pre- 
sumption to that effect — if the doctrine is reason- 
ably interpreted. That is to say, if it is taken to 

1 An interesting statement of the doctrine of "standardiza- 
tion upward" is to be found in the evidence of Mr. J. H. 
Thomas (then Assistant Secretary of the Amalgamated So- 
ciety of Railway Servants) before the "Commission of In- 
quiry into Industrial Agreements" (Great Britain), CD 6953, 
1910, Q 13902. Chairman: I think there are eight railways 
running into Manchester. You were talking about uniformity 
in such a case. Supposing that five out of the eight rail- 
ways had a particular rate for a particular class of labor, 
would you apply that rate to the other three railways? A: 
It may be that the five should be lower than the three, and 
in that case, I certainly would not apply the lower to the 
others. I would apply the higher rate as being the uniform 
rate; but think that would be got over by the suggestion 
that I have made whereby the rate would be determined for 
Manchester, for example, by one authority. Q 13903 — I will 
assume for the moment that the three are less than the five. 
Would you then make the rate that the five are paying a 
minimum rate? A: Yes, if the three were less than the 
five, then the rate of the five would be the rate, but if one 
was higher than the seven, then the other seven would come 
up to the one quite naturally. For another good example^ 
see the claim of the Unions in the Engineering and Foundry 
Trades (Special District Cases), Committee on Production 
Reports (Great Britain), Vol. II, New Series (545). 



THE STANDARD WAGE 175 

mean the higher range of wages, rather than the 
highest single wage. That presumption arises 
from the fact that, unless there is evidence to the 
contrary, the higher range of unstandardized 
wages indicates what wages may be enforced 
throughout the occupation without causing great 
disturbance and unemployment. The circum- 
stances which would govern the correctness of this 
presumption are many and have already been dis- 
cussed. 1 The actual range of difference between 
the various wage rates being paid for the same 
occupation in different enterprises should be given 
importance in the judgment as to whether stand- 
ardization should take place at the level of the 
higher range of wages. 

Furthermore, in many cases where wages are 
standardized at a level lower than some of the 
wage rates already paid for the work in question, 
it would usually be sound to provide that these 
higher wage rates should not be reduced at once. 
This ruling was adopted in the decisions of the 
War Labor Board and it has also been embodied 
in the so-called "saving clauses" in the American 
railway wage decisions. 2 

9. — The principle of standardization may be 
considered basic in any wage policy for industrial 

1 See pages 138-9, Chapter VII, also pages 192-5, Chapter IX. 

2 Justice Higgins of the Commonwealth Court of Australia 
has dissented from the saving clause idea simply on the 
ground that if the unions desire standardization and uni- 
formity, they "must take the rough with the smooth," Case 
of the Federated Shoremen & Packers* Union, page 150, Vol. 
X, "Commonwealth Arbitration Reports." 



176 THE SETTLEMENT OF WAGE DISPUTES 

peace. This is not because the existence of 
various wage rates for the same work is the great- 
est source of industrial conflict. But because the 
establishment of clearly known wage rates for 
each type of labor, extending over the field of its 
employment (with whatever limitations or varia- 
tions are admitted to the principle) is often essen- 
tial to the operation of any other principles of 
wage settlement. The establishment of standard 
wage rates makes possible a clear knowledge of the 
economic position of the various classes of wage 
earners. Likewise, it makes possible the accurate 
measurement of wage change; and also makes 
for simplicity and uniformity in the application of 
changes. Lastly, it tends to produce a careful 
classification of the different kinds of work, in 
which the minor and local differences in the nature 
of the work are gradually eliminated. These are 
the reasons for the "strong public interest in 
standardization" which was spoken of above. 1 

1 Compare J. N. Stockett, Jr., "Arbitral Determination of 
Railway Wages," pages 46-47. 



CHAPTER IX— THE LIVING WAGE 

Section 1. The reasons for seeking separate principles for 
the settlement of the wages of the lowest paid groups. 
— Section 2. Wage statistics of these groups a matter of 
familiar knowledge. — Section 3. The definition of the 
living wage idea. An inescapable element of indefinite- 
ness contained in it. — Section 4. The living wage prin- 
ciple put in the form of applied policy. — Section 5. 
Should the living wage principle be applied to male labor? 
The arguments for and against. — Section 6. The the- 
oretical case for the living wage principle. The verdict 
of past experience favorable to its extension. — Section 7. 
The dangers which must be guarded against in applying 
it. — Section 8. It should be administered through ma- 
chinery which makes possible careful study of facts of 
each industry. This machinery discussed. — Section 9. 
The question of the relation to be established between 
living wage for men and women difficult. Alternatives 
considered. — Section 10. A plan for the adjustment of 
the living wage to price changes. The basis of adjustment. 
— Section 11. The policy of adjustment — already dis- 
cussed. — Section 12. The hope of the living wage policy. 

1. — In the brief survey earlier in this book of 
the present industrial situation in the United 
States, it was concluded that the improvement of 
the economic position of the lowest paid groups of 
wage earners was one of the chief objects to be 
borne in mind when striving to work out a policy 
of wage settlement for industrial peace. In the 
following chapters a study was made of the causes 
of the formation and existence of relatively separ- 

177 



178 THE SETTLEMENT OF WAGE DISPUTES 

ate groups of wage earners, and of the forces which 
determine the level of earnings for the various 
groups. It was observed that the lowest paid 
groups of wage earners tended to be separated 
from the more fortunate groups; they have rela- 
tively independent economic fortunes. Two 
reasons exist, therefore, for giving separate treat- 
ment to the question of the principles by which 
the wages of these least favorably placed groups 
of wage earners should be settled — as part of the 
policy of wage settlement for industrial peace. 
Firstly, because their economic position is a matter 
of special concern ; secondly, because the wage in- 
comes of these groups are determined, in part, by 
forces which do not affect equally, or in the same 
way, the wages of the other groups. 

The living wage principle as put forth in this 
chapter is the principle suggested for use in the 
settlement of wages for these least favorably 
placed groups of workers. It is the second of the 
measures, intended to form a policy of wage set- 
tlement for industrial peace. 

2. — It is not necessary to give here the wage 
statistics for the groups of wage earners who are 
lowest in the industrial scale. They form the 
record of the fact that a considerable percentage 
of all female industrial wage earners, and some 
groups of male wage earners who perform un- 
skilled work, are in receipt of wages insufficient 
to enable them to live according to those concep- 



THE LIVING WAGE 179 

tions of the minimum level of satisfactory eco- 
nomic existence which have been formulated by 
public agencies from time to time. 1 

3. — The general idea of the living wage is not 
a new one. It has been the subject of many defini- 
tions. A comparison of a few of the best attempts 
to express the idea shows, on the one hand, the 
definite purpose which is its inspiration and, on 
the other hand, an inescapable element of in- 
definiteness which persists in all instances where 
the idea has been enacted into policy. 

The definition given to the living wage idea by 
the South Australian Industrial Court (an agency 
which has made searching efforts to explain its 
underlying assumptions) is that all wage earners 
should receive "a wage that will meet the reason- 
able and normal needs of the average citizen in a 
particular locality." 2 In the declaration of the 
war labor policy of the Dominion of Canada one 

1 The best short summaries of the pre-war wage situation 
are — "The Standard of Living among the Industrial People 
of America" (1911), by F. H. Streightoff, and an article by 
C. E. Persons in the February, 1915, issue of The Quarterly 
Journal of Economics. For a more extensive study see the 
Report of the Commission of Enquiry of the Board of Trade 
(Great Britain) into working class rents, etc., which contains 
material of great value. A recent comprehensive survey of 
wages in the United States, undertaken by the Bureau of Labor 
Statistics for the War Industries Board was published in May, 
1920. It is Bulletin No. 265, U. S. Bureau of Labor Statistics, 
" Industrial Survey in Selected Industries in the United States, 
1919." 

2 South Australian Ind. Reports. Vol. 2-3—1919. Page 6— 
Submission by Employees in Cardboard Box Industry." 
Quoted from Printing Trades Case. 



180 THE SETTLEMENT OF WAGE DISPUTES 

can read that "all workers, including common 
laborers shall be entitled to a wage ample to en- 
able them with thrift to maintain themselves and 
families in decency and comfort, and to make 
reasonable provision for old age." 1 And contained 
among those principles laid down for the guidance 
of the United States War Labor Board is the fol- 
lowing, "In fixing wages, minimum rates of pay 
shall be established which will insure the sub- 
sistence of the worker and his family in health 
and comfort." 2 

These definitions reveal clearly the aim which 
inspires them. They express a determination to 
secure for the least favorably placed members of 
the industrial community wages sufficient to 
enable them to share with the rest of the commu- 
nity prospects of an active and happy life, as the 
run of men understand that idea at any time and 
place. Still all these definitions — including the 
one just given — assert a goal sufficiently indefinite 
to permit, and indeed necessitate interpretation 
according to the circumstances under which the 
idea is translated into policy. The clarity of the 
idea arises from a simple belief. That belief is 
that any body of individuals of average honesty, 
though they disagree in many things, can reach 
a large measure of agreement as to the minimum 
income which will enable the ordinary wage 

1 Labor Gazette of the Dominion of Canada, August, 1918, 
pn^o 617. 

2 As reported in the Survey, April 6, 1918. 



THE LIVING WAGE 181 

earner to live a life which satisfies, in a minimum 
measure, the ideals of life current in the commu- 
nity. The indefiniteness of the idea arises out 
of the fact that it is not likely that this body of 
men will be in complete agreement as to this mini- 
mum income; and therefore the wage finally 
settled upon is likely to represent a compromise 
between conflicting opinions. This is well brought 
out in a passage contained in one of the reports 
of the Minimum Wage Board of the District of 
Columbia. ". . . Cost of living is such an un- 
standardized subject that a mathematically ac- 
curate determination is impossible. In each con- 
ference there are as many different opinions as 
there are members. In general, the employers 
want a wage sufficient to maintain existing 
standards of living in the industry, while the em- 
ployees contend that the standard of living should 
be improved. The wage finally agreed upon is 
not a scientific determination based solely on facts, 
but rather a compromise of opinion between the 
two groups, modified as it may be, by the opinion 
of the public." * 

The reference contained in practically all defini- 
tions of the living wage principle to the standards 
of a particular time and place assists greatly in 
interpreting the principle into policy. 2 For this 

1 Second Annual Report of the Minimum Wage Board, 
District of Columbia (1919), page 18. 

2 An excellent study of the technique of measurement of 
the cost of living is that by W. F. Ogburn, "Measurement of 
the Cost of Living and Wages." No. 170, Annals of the 



182 THE SETTLEMENT OF WAGE DISPUTES 

reference is tantamount to saying that the stand- 
ard of economic life which shall be deemed to 
satisfy the principle, should be fixed primarily by 
comparison with the standard of life of the wage 
earning and middle classes in the community at 
the given time. This comparison tends to govern 
the content of the living wage idea. It brings the 
living wage determination into direct relation 
with — or makes it relative to — the productive 
capacity of the industrial system at the time and 
place in question. For a study of the standard 
of life of the wage earners and the middle classes 
of the community is of great assistance in indicat- 
ing the standard of life to which it may be 
possible to raise even the worst paid industrial 
groups, by those adjustments in production and 
distribution which it is the object of a living wage 
policy to produce. This essential relativity of the 
living wage idea is well pointed out in a decision 
of Justice Brown of the South Australian Indus- 
trial Court. ". . . . The statutory definition of the 
living wage is a wage adequate to meet the normal 
and reasonable needs of the worker. In other 
words, the conception is ethical rather than eco- 
nomic. The Court has not to determine the value 
of the services rendered, but to determine what 
is necessary to meet normal and relative needs. 

American Academy of Political and Social Science (1919). 
The article helps to put much firm ground under the feet of 
those engaged in cost of living investigations for the United 
States. For a description of the methods pursued in official 
cost of living investigations in Great Britain, see the account 
by F. H. McLeod in the June, 1919, issue of the U. S. Monthly 
Labor Bulletin, page 119. 



THE LIVING WAGE 183 

It should be obvious that in the interpretation 
of reasonable needs the court cannot be wholly 
indifferent to the national income. The reason- 
able needs of the worker in a community where 
national income is high are greater than the rea- 
sonable needs of the worker in a community where 
the national income is low." * 

The living wage has ordinarily been assessed on 
different bases for men and women. The basis of 
assessment for each has been the subject for much 
controversy. The most generally upheld basis of 
assessment is, in the case of the male wage earner, 
to assess his needs on the supposition that he is 
the supporter of a family consisting of himself, 
wife, and two or three small children ; and in the 
case of the female wage earner, to assess her needs 
on the supposition that she is living alone, and is 
dependent upon her own earnings for her support, 
and that she has no other obligations. These bases 
of assessment do not meet all of the demands of 
logic — applied to the living wage idea — nor, as 
will be seen, is the choice of different bases of 
assessment for men and women entirely free of 
difficulty. 2 

The reasoning, which has been used ordinarily 
in support of the suggested basis of assessment 
for men is well set forth in another decision of 
Justice Brown, "I look upon the maintenance of 
home life as of supreme importance to the com- 

1 The Plumber's Case, South Australian Industrial Reports 
(Volume I, 1916-18), page 122. 

2 See pages 199-202, this chapter, for further discussion of 
this question. 



184 THE SETTLEMENT OF WAGE DISPUTES 

munity. I regard the wage paid to the adult male 
as essentially and in substance a family wage. 
True, so far as single men are concerned, it has 
long been settled that the minimum (living) wage 
should not be less than that of the married man. 
In other words, in discussing the needs of the male 
worker, a man with a family to support has been 
taken as a basis of assessment. Any other con- 
clusion would prejudice the married man in search 
of employment and would tend to produce sterility 
of the population, and would place the industrial 
court in the invidious position of fixing wages at 
a rate which would make it difficult, if not im- 
possible, for single men to save something for the 
time when they may have the felicity to become 
supporters of a family." 2 The argument in sup- 
port of the suggested basis of assessment for 
women rests upon a sentiment to the effect that 
every worker should earn, at least, enough to en- 
able her to support herself, even though the actual 
necessity does not exist in many cases, and though 
in many other cases the female wage earner has 
obligations beyond self-support. 

4. — After these preliminaries, it is possible to 
make more definite recommendations concerning 
living wage policy — with a view towards the adop- 
tion of the living wage principle as part of a policy 
of wage settlement. 

1 The Printing Trades Case, South Australian Industrial Re- 
ports, Vol. II, 1918-19, page 35. 



THE LIVING WAGE 185 

Firstly, as to scope. It should apply to all 
groups of workers whose average annual earnings 
fall below the sum settled upon by the constituted 
agency as the minimum necessary for the fulfill- 
ment of the living wage idea. The statistical 
definition of the term "average" as just used 
should also be left to the constituted agency. 
Allowance should be made in each occupation for 
a small percentage of sub-ordinary workers. 

Secondly, as to the basis of assessment of the 
living wage, and the procedure by which it should 
be fixed. There should be an extensive and (so 
far as it is possible) impartial investigation of 
the cost of that minimum standard of economic 
life which it is the intention of living wage policy 
to secure for all industrial wage earners. In the 
determination of what should be included in the 
minimum standard, attention should be paid to 
the income levels of the wage earners in general, 
and of the middle classes. The wages now re- 
ceived by the lowest paid groups would also be 
an important consideration. 

The living wage settled upon by this process 
of investigation should be in the form of a weekly 
standard wage. It should be considered as a 
minimum only for any occupation to which it is 
applied. Like other standard wage rates, it should 
be subject to limitation or variation in accordance 
with the conclusions reached on that subject in 
the preceding chapters. 1 The questions which 
arise out of the fact that it would have to be en- 

^ee Chapters VII-VIII. 



186 THE SETTLEMENT OF WAGE DISPUTES 

forced in a number of different industries, and 
under widely different conditions will be consid- 
ered at a later point. 1 The bases of assessment 
for men and women should be those discussed and 
approved in the preceding section. The living 
wage that is fixed should be subject to reconsidera- 
tion and revision at definite periods; aside from 
the revisions which may be called for as the result 
of price movement, 2 or under the profits test 
which is suggested later in the book. 3 

5. — So much then for the central features of the 
living wage proposals. We have now to consider 
the probable result of their enforcement; and any 
criticisms to which they may be fairly subject in 
their proposed form. Thus we will be enabled to 
discover what modifications, large or small, are 
advisable. 

Objection may be taken, first of all, against the 
scope of these proposals. So far living wage legis- 
lation in the United States has been applied to 
female industrial workers only. The argument 
against the extension of the principle to male wage 
earners is put on two grounds — the constitutional 
and the economic. On the constitutional argu- 
ment, only the briefest comment will be at- 
tempted; and that without any intention to 
dogmatize upon a most complicated subject. That 
is that the test of the constitutionality of these 

1 See pages 192-6, this chapter. 

2 See pages 202-7, this chapter. 
8 See Chapter XII. 



THE LIVING WAGE 187 

proposals should be the balance of good or harm 
they promise. The constitution is at bottom but 
a very wise guide as to what public good and 
harm consists of. But as the conditions and facts 
which determine good and harm change, these 
changes should be reflected in the interpretation 
of the constitution. These living wage proposals 
do not, it seems to me, offend against any of the 
fundamental ideas which the constitution con- 
tains. 

The economic argument against the extension 
of the living wage policy to male wage earners is 
usually based on the contention that it is unneces- 
sary, or that it has a bad effect upon the spirit 
and character of the male wage earners concerned, 
or upon both these contentions. As to its neces- 
sity, the statistics of wages for the least favorably 
placed groups of male wage earners, and observa- 
tion of their economic handicaps offer sufficient 
evidence. As to the belief that the extension 
would be destructive of the spirit or character of 
the male wage earners concerned, there is little 
or no factual support for that view, and much to 
refute it. A minimum level of economic existence 
is requisite to the growth and development of 
personal initiative and of a spirit of self-con- 
fidence. Vigor and independence of temper and 
action is not bred in a position of extreme eco- 
nomic dependence. One does not have to be blind 
to the dangers of paternalistic legislation to be- 
lieve that living wage policy for male wage earners 
is justified, under modern industrial conditions. 



188 THE SETTLEMENT OF WAGE DISPUTES 

All the more so, since experience with living wage 
legislation proves that it encourages voluntary 
organization among the wage earners. And this 
fact, indeed, is also a fair answer to the tough dis- 
like of the American labor unions for all other 
methods of settling the wages of male workers 
than that of collective bargaining. 

6. — We may now pass from the possible objec- 
tions to the scope of these proposals, to those 
which may be fairly leveled against their sub- 
stance. Although the living wage principle has 
been used in wage settlement throughout the Aus- 
tralian Dominions, in many English industries, 
and in a limited number of industries in some of 
the American states, the controversy which arose 
over it, when first it was introduced, is far from 
quieted. This is explained, in part, by the ex- 
treme difficulty of getting evidence as to its re- 
sults which is beyond the shadow of doubt. That 
is due, in part, to the great variety of conditions 
under which it has operated. Its results are 
always complicated by circumstances which differ 
from place to place. Again, there is the fact that 
such experiments as that of the living wage are 
apt to be judged from a rapidly changing view- 
point. 

The very conscientious efforts which have been 
made, however, to measure the effect of the vari- 
ous experiments with living wage legislation fur- 
niab us with much valuable material on most of 



THE LIVING WAGE 189 

the debated matters. No attempt can be made 
here to reproduce the various sides of the con- 
troversy, or to summarize the evidence which has 
been collected upon the disputed aspects of the 
subject. 1 Much of it covers the same matters 
which were treated in our analysis of the principle 
of wage standardization. In my opinion, the ex- 
isting evidence warrants the advocacy of an exten- 
sion of the living wage policy in the United States. 
It furnishes us also with valuable instruction as to 
the form in which the policy is likely to work out 
most satisfactorily. 

1 A valuable collection of evidence in support of living wage 
legislation is contained in the briefs presented ii Jie cases of 
Stettler v. O'Hara (The Oregon Minimum Wager Case) pub- 
lished by the National Consumers' League. This collection 
of evidence is brought up to date in the new brief just pub- 
lished in defense of the Minimum Wage Commission — Dis- 
trict of Columbia (Children's Hospital vs. Minimum Wage 
Board), 1921. For a collection of theoretical opinions on 
various aspects of the subject, see the symposium on the 
Manimum Wage Problem, which is printed as Appendix III, 
Vol. I, 4th Report of the New York State Factory Investi- 
gating Commission (1915), pages 592-827. An excellent bibli- 
ography on the subject by Miss Irene Osgood Andrews is to 
be found in Appendix III, 3rd Report of the same Commis- 
sion (1913). The best studies of the Australasian experience 
are those of M. B. Hammond (especially the articles in the 
Quarterly Journal of Economics for Nov., 1914, and May, 
1915), and P. S. Collier, Appendix VII, 4th Report of the 
N. Y. State Factory Investigating Commission. The bulletins 
of the Massachusetts, Oregon, and Washington (D. C), Mini- 
mum Wage Commissions are the best studies of the effects 
of American legislation. Upon the results of the British 
Trades Boards see the studies of R. H. Tawney on the Chain- 
making and Tailoring Trades and that of M. E. Bulkeley on 
the Box Making Industry. The Parliamentary Debates 5th 
Series (Vols. 96-97, 107-108, Hansard), cover every aspect of 
the English experience. 



190 THE SETTLEMENT OF WAGE DISPUTES 

The value of the living wage principle as an 
instrument for bringing about an improvement in 
the economic condition of the lowest grades of 
industrial workers, without producing equivalent 
harm in any other direction, is also supported by 
general theoretical reasoning; that is, by a study 
of the forces which govern wages in general, and 
the wages of these lowest groups in particular. In 
the study of these forces, earlier in the book, it 
was pointed out that the outcome of distribution 
may be affected by just such assertions of pur- 
pose as that represented by the living wage policy. 
If labor organization has been able to increase the 
wages of certain groups of wage earners without 
doing equivalent harm in any other direction, 
there is reason for believing that a living wage 
policy can accomplish something of the same re- 
sult for the lowest grades of industrial labor, 
which have been up to the present practically 
without organization. And, indeed, in England, 
the Trades Boards, which are the machinery of 
the living wage policy, are ordinarily regarded as 
fulfilling practically the same functions as organi- 
zation does for the more favorably placed groups. 1 

Furthermore, the nature of certain of the forces 
which account for the low wage levels of the 
groups that would be affected by the living wage 

x The best theoretical statement of the dangers and dif- 
ficulties presented is the article by F. W. Taussig, " Minimum 
Wages for Women/' in the Quarterly Journal of Economics. 
June, 1916. The evidence, however, seems to me to stand 
against the skepticism expressed therein. 



THE LIVING WAGE 191 

policy, give the above argument special force. For 
among those forces are these: that their wages 
have been, at times, less than the amount neces- 
sary to enable them to do as efficient work as they 
were capable of doing; and so low, frequently, as 
to make the struggle for self-improvement and 
advancement, for members of these groups, a very 
difficult matter. Thus the numbers in these groups 
have been kept greater than they would have been 
otherwise. Furthermore, their wages have been, 
at times so low that efficient industrial manage- 
ment counted little in success. Furthermore, these 
groups have had practically no organization or 
leadership to prevent their employment under 
conditions most unfavorable to their health, 
energy, and general welfare. And lastly, that the 
present industrial system has a tendency to take 
advantage of economic weakness wherever it 
exists. Against these considerations must be put, 
perhaps, the submission shown by these groups to 
the course of industrial development, and the con- 
stant service they have given, in their position of 
dependence, in monotonous and wearisome work. 
The case of the living wage policy rests upon 
the opinion that the introduction of living wage 
standards will give rise to a series of adjustments 
in production and distribution. And that the net 
sum of the results of these adjustments, perhaps 
only after a temporary period of dislocation in 
some instances, will be to increase the wages of 
the lowest grades of wage earners — without doing 



192 THE SETTLEMENT OF WAGE DISPUTES 

equivalent harm in any other direction. It also 
rests on the opinion that the permanent economic 
advancement of these lowest groups of wage 
earners is a practicable ideal — though fate seems 
to take a special delight in dealing harshly with 
this particular ideal. 

7. — Among the adjustments, however, which 
general reasoning suggests as a possible conse- 
quence of the enforcement of a living wage policy 
are some which it is the part of policy to guard 
against. Existing evidence shows that they have 
not often followed upon previous enforcements of 
living wage policy; yet they must be borne in 
mind. They are firstly: the possibility that em- 
ployment of the wage earners who are affected by 
the living wage policy may be permanently re- 
duced. This may result either because of price 
increase in the commodities produced by these 
wage earners, or because of substitution into their 
occupations of other classes of labor or of ma- 
chinery. And secondly: the possibility that the 
enforcement of the living wage policy will bring 
about a concentration of employment upon the 
more efficient members of the groups affected, and 
thus throw out of employment the very individ- 
uals who are most in need of help. And thirdly: 
the possibility that there will be an increase in 
the numbers of those groups which the living wage 
principle is designed to aid, with consequences 
similar to those suggested under the second 
heading. 



THE LIVING WAGE 193 

In my opinion, the chances that any of these 
things will result from the enforcement of a living 
wage policy in the United States to-day are small. 
Yet to put the matter summarily, — these are the 
dangers which those entrusted with the adminis- 
tration of a living wage policy would have to be 
alive to; and if they become real, seek to over- 
come, by shaping their policy according to the 
facts that confront them. The factors which will 
determine whether any or all of these undesirable 
results will ensue are many. They cannot be bal- 
anced in the abstract. Yet general reasoning en- 
ables us to discern those which will make that 
likelihood greater or smaller in any occupation 
or industry. 

We may start by enumerating those factors 
which enter into the likelihood that a reduction 
of employment will result from the enforcement 
of a living wage policy. They are: Firstly, the 
amount of wage increase undertaken; secondly, 
the importance of the wages received by the 
groups in question in the total expenses of pro- 
duction; thirdly, the shape of the demand curve 
for the products of the groups; fourthly, the 
chances for improvements in the methods of pro- 
duction; fifthly, the chances of encouraging bet- 
ter business management by enforcing living wage 
standards; sixthly, the effect of the wage increases 
upon the efficiency of the groups affected, and 
their fitness for advancement to more skilled 
work; seventhly, upon the opportunities for sub- 



194 THE SETTLEMENT OF WAGE DISPUTES 

stitution of machinery; and lastly upon the ulti- 
mate effects of the introduction of machinery on 
the employment of these groups. 

Turning now to the second possibility, that the 
enforcement of living wage standards will cause 
a concentration of employment upon the more 
efficient workmen, thus throwing out of employ- 
ment those most in need of help, here, too, a 
great number of factors have to be reckoned with. 
They, however, have already been dealt with in 
the previous discussion of the effect of stand- 
ardization upon the distribution of employment. 
There is no need of enumerating them again in 
this place. One point of difference should be ob- 
served, however. The differences of individual 
efficiency among the workers that would be 
affected by the living wage policy are more sub- 
stantial than the differences of individual 
efficiency among the members of the more skilled 
wage earners. And, therefore, while it would be 
unnecessary to make any special provision for the 
least efficient members of the more skilled groups 
upon the introduction of standardization, it might 
at the start be decidedly good policy to make spe- 
cial provision for the least efficient members of 
the unskilled groups. Under practically all living 
wage legislation special provision is made for 
them. 

It should also be remarked in this connection, 
that the probable greater range of individual 



THE LIVING WAGE 195 

efficiency among the unskilled as compared with 
the skilled is in some measure to be attributed to 
their present low wage levels. Inefficiency is 
likely to grow upon itself. Mr. Aves has remarked 
pertinently in this regard, "As with the 'unem- 
ployed' or the 'unfair employer' so with the 'in- 
competent' and the 'slow/ none of these represent 
well defined classes. All are elastic. Some can 
be created and all merge by imperceptible degrees 
into the classes above." 1 The enforcement of a 
living wage policy, it may be hoped, would in itself 
reduce the range of individual efficiency among 
the unskilled. For it would keep from the ranks 
of the "incompetent" and "slow" some who might 
have found place elsewhere had their chances been 
somewhat better. 

We turn to the third possibility — that as a re- 
sult of enforcement of a living wage policy there 
will be an increase in numbers in those groups who 
fall within its scope. Here the pertinent factors 
are: Firstly, the movement out of the lowest paid 
groups into those more favorably placed, owing to 
the effect of increased wages upon individual 
capacity and the use of individual opportunity; 
secondly, upon the movement from other groups 
into the groups affected by the living wage policy, 
due to the wage increases brought about by the 
policy, and thirdly, upon the effect of these wage 
increases upon the frequency of family labor, and 

1 Report on Wage Boards and Industrial and Condition Acts 
of Australia and New Zealand (1908). 



196 THE SETTLEMENT OF WAGE DISPUTES 

upon the age of entry into and retirement from 
industry. 

8. — So much, then, for the possible undesirable 
consequences of the application of the living wage 
principle. It is evident that the policy must be 
put in such a form as will make possible a careful 
study of the facts of each industry or occupation 
and adaptation to these facts. The following pro- 
posals are made primarily with the view that they 
will permit this flexibility. They are also designed, 
however, to fit into the other requirements of the 
general policy of wage settlement for industrial 
peace, which is under study. 

It is proposed that there should be in every 
industry which is included within the general 
scheme of wage settlement a joint council or 
board. There might also be occupational boards 
or councils. These councils or boards should con- 
sist of representatives of the workers and of the 
employers. Representatives of the public might 
act upon these boards or councils in advisory 
capacity. There might be both a central board 
or council, and various district boards or councils 
in each industry. These joint boards could be 
given other duties outside of the administration 
of the living wage policy. That matter will be 
taken up at a later point. Here, note will be 
taken only of the part they could play in the 
administration of the living wage policy. 



THE LIVING WAGE 197 

The joint boards or councils should be advisory 
to the central authority which is constituted to 
administer the policy of wage settlement as a 
whole. The functions of this central authority in 
regard to the formulation and declaration of the 
living wage for men and women have already been 
discussed. It should be provided, however, that 
the central authority should make no living wage 
declaration or hand down any order until it has 
received the report of the joint boards or councils 
in the industries or occupations in question upon 
the subject of such decisions or orders. The report 
of the joint boards or councils should be given 
great weight by the central authority in arriving 
at decisions. The joint boards or councils should 
be permitted to submit both majority and 
minority reports to the central authority. 

Among the matters arising in the course of the 
administration of the living wage policy, upon 
which the joint boards or councils should be called 
upon to advise the central authority, are the fol- 
lowing: Firstly, upon the wage to be prescribed 
in that industry or occupation. Each joint council 
should be free to recommend a wage less than the 
wage declared to be a living wage by the central 
authority, giving its reasons for the same. It 
should also be free to recommend a wage more 
than the declared living wage, giving its reasons in 
this cpse also. The conclusions reached in regard to 
"nominal variations" as between different sections 



198 THE SETTLEMENT OF WAGE DISPUTES 

of an industry are equally valid as between in- 
dustries or occupations. 1 Secondly, upon ques- 
tions connected with the form of wage payment, 
and the arrangement of piecework lists designed 
to yield the prescribed living wage. Thirdly, upon 
the question of sub-ordinary workers in an occu- 
pation or industry, and upon the issuance of per- 
mits for the same to work for less than the pre- 
scribed wage. Fourthly, as to whether the wage 
fixed for any industry or occupation should be 
varied or limited. Fifthly, upon any difficulties 
that may present themselves because of the fact 
that the living wages for men and women are as- 
sessed on different bases. Lastly, upon these 
boards or councils should rest the duty of observ- 
ing how well the declarations or orders of the cen- 
tral authority are observed; and of studying the 
effect of the prescribed wages upon these classes of 
wage earners that the living wage policy is de- 
signed to help, and upon the industry in general; 
and of reporting periodically to the central author- 
ity upon the same. 

It is true that the procedure of these councils 
would consist largely of the compromise of con- 
flicting opinions. It will be the duty of the cen- 
tral authority, however, to prevent them from 
settling down to that regime — nor should the 
central authority consider itself bound to accept 
the advice of these joint councils or boards. 

1 See pages 160-6, Chapter VIII. 



THE LIVING WAGE 199 

9. — The determination of the relation between 
the living wage for men and women is one of the 
difficult questions that will have to be met in the 
course of the enforcement of any living wage 
policy. The position of women, both in industry 
and in society is at present undergoing change. 
The limit and direction of this change cannot be 
marked out with certainty. Therefore, the pre- 
suppositions upon which present policy may be 
constructed may become invalid in a compara- 
tively short time. The unsatisfactoriness of leav- 
ing the question to be settled by the decision of 
the market has become increasingly plain. That 
policy produces, on the one hand, a constant effort 
on the part of the employers to so modify their 
processes of production as to take advantage of 
the low range of women's wages, irrespective of 
the effect on men's wages and of the suitability of 
the occupation in question for women; and, on 
the other hand, a constant effort on the part of 
the men to keep the women out of all new employ- 
ments. 

The best advised foundation for present policy, 
in my opinion, is the two separate bases of assess- 
ment, suggested above. 1 In its favor, it may be 
pointed out that it corresponds to a certain extent 
to the existing relation between the wages of men 
and women in industry, and it would not, there- 
fore, produce any violent change. Its unsatisfac- 
toriness lies in the possibility that it may 

1 See pages 183-4, this chapter. 



200 THE SETTLEMENT OF WAGE DISPUTES 

gradually lead to a displacement of men by 
women in many employments. On the question 
of whether such displacement is to be desired, 
there is room for the very deepest differences of 
opinion. It seems to me, however, that the in- 
dustrial history of the nineteenth century proves 
the supreme importance of the wage of the head 
of the family to the general welfare of the family. 
For that reason, it is, in my opinion, wise to pro- 
tect the wage of the male head of the family ; and 
thus to provide that when men and women are 
employed upon the same work or when women 
are introduced into employments hitherto filled 
by men, the wage rates for men should be en- 
forced throughout the employment. This ruling 
could be interpreted in some cases in terms of the 
relative efficiency of men and women, if there was 
a clear difference of efficiency. Of course, if the 
term "relative efficiency" is construed to include 
the difference in the indirect or overhead expense 
involved in the employment of male or female 
labor in any occupation, such a policy would 
amount to throwing open every field of employ- 
ment to women. 

There are a number of alternative policies that 
might be pursued in order to ensure that the use 
of different bases of assessment for the living wage 
for men and women should not lead to haphazard 
displacement of men by women. Justice Brown 
in the Printing Trades Case has called attention 
to the most important of them. "... I suggest," 



THE LIVING WAGE 201 

he writes, "that with respect to any industry or 
grade, where the prima facie formula above (that 
is, a different living wage for men and women) 
is challenged, evidence should be given to show 
that it is desirable, having in view the interests of 
all parties and of the community, that men should 
be retained in that industry or grade even though 
such retention might involve some departure from 
the formula in question. Where such evidence is 
satisfactory there are several alternatives open to 
an industrial court. (1) To fix the same wage for 
women as for men. (2) To fix a ratio wage where 
it is proved to the satisfaction of the Court that 
the average woman is not of equal value to the 
employer. (3) To exclude women. (4) To accept 
the prima facie mode of assessment, but to limit 
the proportion of women who may be employed 
by any particular employer in any particular in- 
dustry or grade . . . The task of choosing may 
often be one of extreme difficulty and delicacy." * 
The task of fixing the relation between men's 
wages and women's wages will be even more deli- 
cate when the introduction of women into a field 
of employment follows upon a modification of the 
processes of production involved. 2 

1 The Printing Trades Case, South Australian Industrial Re- 
ports, Vol. II (1918-19), page 252. 

2 The suggestion put forward in the "Report of the War 
Cabinet Committee on Women and Industry" (Great Brit- 
ain), 1918, is as follows: "In such cases," the report reads, 
"the time rates for the simplified process or simplified ma- 
chine should be determined as if this was to be allocated to 
male labor less skilled than the male labor employed before 



202 THE SETTLEMENT OF WAGE DISPUTES 

As was said above, to give advice upon the 
question of the relation between men's wages and 
women's wages, should be one of the duties of the 
joint boards or councils in the various industries. 
The course to be pursued should be decided upon 
by balancing all of the interests involved. It is 
to be desired that the same policy be pursued 
throughout all industries or occupations rather 
than divergent ones, and the central authority 
should strive to attain unity of policy. 

10. — The complications introduced into the ad- 
ministration of the living wage principle by 
changes in the general price level have yet to be 
dealt with. It has been seen that changes in the 
general price level affect the outcome of distribu- 
tion and, for that reason, any policy of wage set- 
tlement must include provision for the adjust- 
ment of wages to price changes. We have now to 
consider how this adjustment can best be carried 
out. 

The central authority is obviously the most 
suitable body to supervise the process of adjust- 
ment. The adjustment to price change should be 
expressed as a percentage addition to or subtrac- 
tion from the existing wage. The central authority 

simplification. Only where it was definitely shown by em- 
ployers that the value of the woman's work on the simplified 
process or machine was Less than the value of the unskilled 
man, should the woman, if her introduction is agreed to, re- 
ceive leBS than the unskilled man's rate in proportion to the 
value of her work." Page 192. 



THE LIVING WAGE 203 

should be charged with the collection of all neces- 
sary price data. This body should then proceed 
upon the advice of the joint boards or councils in 
the industries concerned. Unless some strong rea- 
son to the contrary exists, however, a uniform 
policy of adjustment should be pursued — resting 
upon the following principles. 

11. — The conclusions reached in Chapter V in 
regard to the policy to be pursued in the adjust- 
ment of wages to changes in the price level fall 
into two groups. Firstly, those which have to 
do with the choice of the basis of calculation of 
wage adjustments. Secondly, those which have 
to do with the choice of the actual policy of ad- 
justment during times of rising and falling prices. 
The same division and order is maintained in the 
following attempt to sketch out a good plan of 
adjustment of living wage rates. 

First, then, these wage rates should be varied 
in accordance with the movement of a price index 
number. This index number should represent the 
prices of all the important commodities produced 
within the country, but so weighted as to give a 
defined importance (50 per cent, was suggested) 
to the prices of those classes of foodstuffs, cloth- 
ing, housing accommodations, and other commodi- 
ties upon which the wage earners tend to spend 
the bulk of their income. It was sufficiently 
emphasized in the earlier discussion of this subject 
that this basis of calculation was in the nature 



204 THE SETTLEMENT OF WAGE DISPUTES 

of a compromise, and was not beyond criticism. 
Adjustments should not be undertaken unless the 
index number of prices has moved at least 5 per 
cent, (the figure is meant to be merely a sugges- 
tion) and adjustment should not be more frequent 
than twice a year (again a suggestion, only). 

Secondly, as to the policy of adjustment to be 
pursued in times of rising and falling price levels, 
respectively. The policy for a period of rising 
prices can be very briefly stated. All wage rates 
prescribed under the living wage policy should 
be increased by the same percentage as the index 
number of prices moves upward. There is one 
case in which this policy cannot be justified 
theoretically. That is when the increase of prices 
can be wholly or mainly accounted for by a falling 
off in the general level of industrial productivity. 
However, in my opinion, it will be hardly prac- 
ticable to attempt to distinguish this case from 
other cases of price increase, — save in an entirely 
exceptional circumstance, such as a period of war 
invasion. 

The policy to be pursued during a period of 
falling prices cannot be stated so briefly. The 
difficulties involved have already been discussed 
at length. 1 The following policy based upon that 
analysis is tentatively suggested. The complex- 
ities of the subject are too great to permit of 
dogmatism. Firstly, the occasion for the price 
decline may be such as was termed "natural," as 

'See pages 114-20, Chapter VI. 



THE LIVING WAGE 205 

for example when it is brought about by a general 
advance in the arts of production, or by the de- 
velopment of the means of transport. In this 
case, it will be satisfactory to keep wage rates un- 
changed, though prices decline. It is in these 
periods that chance is afforded of bringing about 
genuine improvement in the economic position of 
the least favorably placed groups of wage earners. 

Secondly, the price decline may be a sign of 
reaction from a previous period of rapid price in- 
crease, and of a general tendency on the part of 
entrepreneurs to keep down production costs and 
to proceed with circumspection throughout. 
Nevertheless if little forced liquidation occurs; if 
there has been no serious overextension of credit 
during the previous period ; if the maintenance of 
the existing price level, or of a slightly lowered 
one, would not impose too great a strain upon the 
banking system — there would be no good cause 
to reduce wages. This judgment rests on the sup- 
position that the facts of the industrial situation 
give promise that industrial recovery will take 
place even if prices do not drop greatly, and drop 
gradually rather than sharply. 

Thirdly, the price decline may be caused — at the 
beginning at all events — by much forced liquida- 
tion of a character that is disastrous to the enter- 
prises compelled to liquidate. It may have been 
preceded by a great over-expansion of credit; and 
the maintenance of the existing price level might 
mean a steady source of danger to the banking 



206 THE SETTLEMENT OF WAGE DISPUTES 

and commercial system. Then the soundest 
policy is to reduce wages as prices fall. To the 
extent that the trouble may be due to special 
causes such as over-investment in particular 
directions, this reduction of wages may be un- 
necessary. But it will probably be found that the 
recovery from a genuine industrial crisis will be 
facilitated if a heavy price decline is stimulated 
by wage reduction. 

No wage reductions should be undertaken 
unless conditions making the case are clearly pres- 
ent. The central authority could avail itself of 
the advice of the Federal Reserve Board. The 
lowering of wage rates might be put off until the 
price decline has reached, say, eight or ten per 
cent. And the percentage of the reduction of 
wages might be smaller than the percentage of 
price decline; say, a three per cent, reduction of 
wages for every four per cent, reduction in prices. 
Lastly, when it is judged that the pressure on 
the financial system is definitely at an end, no 
further reduction in wages should be ordered even 
though the price decline continues. 1 

1 A number of collective agreements in which the arrange- 
ments for wage adjustment to price decline are similar to 
those suggested here, have recently been negotiated in Eng- 
land. The wage scales established in 1919 for many grades 
of railroad workers are an example. So also, the agreement 
of the Wool Textile Industrial Council, in October, 1919. 
The following agreement made for the Yorkshire Dyeing 
and Finishing Industry in March, 1919, may be given as an 
example. 

"(7) When the index figure as defined in classes 4 and 
5 hereof exceeds 107 per cent the War Wages shall be: — 



THE LIVING WAGE 207 

In concluding this discussion one general re- 
flection may be permitted. That is to the effect 
that no policy of wage settlement will, in itself, 
suffice to protect the standard of life of the lowest 
industrial classes during critical industrial times; 
whether such a time be one of rapidly rising prices 
of foodstuffs due to poor harvests, or to war, or 
whether it be a period of industrial panic and 
precipitate price decline. Much can be done to 
protect the standard of life of these classes by 
measures outside of the scope of any policy of 
wage settlement. The suggestion made by Pro- 
fessor Taussig that it may be possible to regu- 
larize the supplies of the principal agricultural 
products from year to year deserves careful con- 
sideration. 1 The best policy, undoubtedly, is one 
which would enable and encourage the lowest paid 
industrial classes to accumulate something for 
hard times. 

"To male and female time workers — 107.90 per cent of the 
basis wage. 

"To male and female pressworkers — 85.672 per cent of the 
basis wage. 

"To hand pressers — 64.254 per cent of the basis wage, and 
when the index figure is 107 or less, but not less than 100, 
the percentage war wages of timeworkers shall be equal to the 
index figures; for every 1 per cent decrease in the index figure 
below 100 the war wages of timeworkers shall be decreased 
% of 1 per cent. The ratio of percentage war wages of time- 
workers, pieceworkers and pressers respectively, shall for all 
index figures, be the same as that shown for index figures, ex- 
ceeding 107." 

lu Cost of Living and Wages," F. W. Taussig, Collier's 
Weekly, Sept. 27, 1919. 



208 THE SETTLEMENT OF WAGE DISPUTES 

12. — The design of the living wage policy is to 
procure for all members of the industrial commu- 
nity the economic essentials of a hopeful and 
active life. Ultimate success in the maintenance of 
any conceived standard of life, will, in the long run, 
depend upon those general relationships which 
were examined in the earlier chapters. The more 
productive the industrial organization as a whole 
is, the better are the chances for the least favored 
industrial groups to improve their economic con- 
dition. The less the economic waste, due to mal- 
distribution and to other causes, the greater the 
product of industry will be. The greater the eco- 
nomic capacity of the lowest grades of wage 
earners, the more general their intelligence and 
the steadier their spirit, the more determined their 
organization, the better will be their chances of 
increasing their share of the total product. And 
lastly, the smaller in numbers these are compared 
with the need of the economic system for them, 
the stronger their economic position will be. 

This is but to restate some of the important 
influences governing the wages of the lowest 
groups of industrial workers. But to restate them 
is to emphasize the fact that the living wage 
policy must be looked upon merely as one agency 
among many, directed to the same end. In 
economic affairs, as in political affairs, to bring 
about a change in one place it is necessary to 
bring about a change in many places. 



CHAPTER X— THE REGULATION OF 
WAGE LEVELS 

Section 1. Why there must be in industry an ordered scheme 
of wage relationship between each and every group of 
wage earners. The limits of collective bargaining as a 
factor in industrial peace. — Section 2. In the beginning, 
the scheme must probably be based on an acceptance of 
existing wage "differentials." The reasons for this are 
of a practical kind. — Section 3. Any policy which 
planned to develop a scheme of wage relationships merely 
by maintaining existing differentials would be bound to 
fall to pieces in the end. The difficulties that would 
arise. — Section 4. Two principles proposed as the basis 
of the desired scheme of wage relationship. Their mean- 
ing as applied doctrines. — Section 5. These principles 
open to criticism both on practical and theoretical 
grounds. The chief criticisms examined and taken into 
account. — Section 6. Some notes on the best method of 
administering these principles. The necessity of avoid- 
ing political interference, if possible. 

1. — We have now completed that part of this 
inquiry which was concerned with the formulation 
of principles suitable for the regulation of the 
wages of the lowest paid industrial groups. The 
task remains of working out principles which 
could be used satisfactorily in the settlement of 
wages for all other groups of wage earners. 

The subject may be introduced by recalling cer- 
tain matters, set forth in the preceding analysis 

209 



210 THE SETTLEMENT OF WAGE DISPUTES 

of wage principles. It was seen that while the 
wages of each and every group of wage earners 
were governed, in a great measure, by forces which 
acted upon them all in common, yet the wages 
of each group were settled somewhat indepen- 
dently of all the rest. Again, it was seen that 
one of the leading characteristics of the present 
distributive situation is the use of the group will 
and group power to serve group purposes. Wage 
movements in different industries or occupations 
begin independently of each other; yet because 
of the firm determination on the part of most 
groups of wage earners to maintain their position 
in the industrial scale, a wage movement in one 
part of the field of industry tends frequently to 
give rise to similar movements throughout the 
field. 

This tendency for the actions of one group to 
give rise to action on the part of other groups 
arises from the existence of some "power of inter- 
change or close connection 7 ' as Mr. Aves has said. 
Before the use of group power becomes common 
and the sense of group interest becomes highly 
developed, that interchange or interconnection 
tends to exist only between classes or groups of 
workmen who can easily move into each other's 
field of employment. But with the extension and 
encouragement of unionism, with a constantly 
growing volume of public discussion of wage ques- 
tions, there has arisen an interconnection between 



THE REGULATION OF WAGE LEVELS 211 

wage movements in groups very far apart in the 
industrial scale. 1 

As long as wave movements in different indus- 
tries and occupations are considered independ- 
ently of each other, and the claims of each group 
are judged with only incidental reference to the 
claims of the other groups, the use of group 
strength will continue to be a conspicuous char- 
acteristic of distribution. The constant assertion 
of group power will cease only if all groups are 
brought within some acceptable plan of wage set- 
tlement, under which group wages are settled by 
principles recognized as fair. The problem is to 
establish an ordered scheme of wage relationship 
between each and every group of wage earners — 
which scheme of relationship will do justice 
between them, and which will also effect such a 
distribution of the product of industry between 
all the wage earners and the other claimants to a 

1 See for examination of this question, "Report of Wage 
Boards and Industrial and Conciliation Acts of Australia 
and New Zealand." E. Aves (1908), page 38. Mr. Henry 
Clay in a review of the wage position before the National 
Council of the Pottery Industry (Great Britain), made an in- 
teresting statement in this regard. He said "... the one 
great lesson which the war taught everybody (including 
Government Departments) was that it was dangerous to 
make a change in the wages or basis of earnings of one sec- 
tion of workers or of one industry unless they considered 
what would be the effect on all related classes and grades 
of workers." Printed in the Staffordshire Sentinel, Oct. 8, 
1920. See also Chapter 39, Lord Askwith's "Industrial Prob- 
lems and Disputes" for a narrative account of the trouble 
caused by sectional wage advances during the war. 



212 THE SETTLEMENT OF WAGE DISPUTES 

share in the product, as will justify it to the wage 
earners and to the community in general. 

If the objection be raised that the establishment 
of such a scheme of wage relationship is not prac- 
ticable, doubt must be admitted. Yet it is prob- 
ably essential to industrial peace, — under our 
present industrial system, or under an alternative 
one. It would seem to be the only substitute for 
the continued reliance of each group upon group 
power. There has been a strong tendency, both 
in the United States and England, to believe that 
industrial peace could be secured by the develop- 
ment of joint industrial or occupational councils 
throughout industry — which councils would as- 
sure fair and complete consideration of all wage 
questions which arise. It would be a serious error 
to underestimate the possible value of such joint 
councils to the cause of industrial peace. Indeed, 
throughout this study of the means of industrial 
peace great reliance will be placed upon them. 
Yet I do not believe that their creation will suffice 
to bring industrial peace. 

Such joint councils are among the most satis- 
factory instruments yet devised for the conduct 
of collective bargaining. But will collective bar- 
gaining keep such an interdependent industrial 
society as our own at work peacefully? Can the 
philosophy of compromise be developed to that 
extent? Joint industrial councils can produce 
understanding between employers and wage 
earners; they can foster a spirit of cooperation 



THE REGULATION OF WAGE LEVELS 213 

between all groups engaged in a productive indus- 
try; they can stand in the way of the creation of 
such intolerable conditions of labor as have, on 
occasion in the past, led to a spontaneous revolt 
in an industry ; they can foster reasonableness and 
compromise. But it is difficult to see how they 
can work out principles of wage settlement for 
any industry which will have sufficient authority 
over the actions of those engaged in it in times of 
stress. 

Before industrial peace can be obtained, par- 
ticular groups of wage earners must forbear from 
pressing to the utmost the bargaining advantages 
they possess. This forbearance will come only 
from a knowledge of an interest larger than their 
own. There will have to be a recognition by all 
sides of principles which represent aims to which 
all subscribe, and which do justice to the interests 
of each. 

2. — What then is required, to repeat, is a policy 
by which wages in various industries and occupa- 
tions are brought into relation with each other. 
This policy should be calculated to result in such a 
distribution of the product of industry as would 
justify it to the wage earners and community in 
general. The scheme of wage relationship would 
have to rest upon expressed principles. 

In the beginning any policy which has as its 
aim the establishment of a scheme of wage rela- 
tionship must accept and protect the existing wage 



214 THE SETTLEMENT OF WAGE DISPUTES 

levels of each group of wage earners. That would 
mean, of course, accepting the wage relationships 
existing between them. The reasons for this are 
practical, rather than theoretical They are: 
Firstly, because it will be impossible to win gen- 
eral consent for any policy of wage settlement 
which does not guarantee to all wage earners at 
least their existing rates of wages. Secondly, be- 
cause the existing relationships between the wage 
levels of the different groups of workers represent, 
though only vaguely and roughly, customary rela- 
tionships, and they therefore have, on occasion, 
meaning to the wage earners. Thirdly, the mere 
fact that they exist makes them the most con- 
venient basis for the very careful process of com- 
parison and calculation involved in any attempt 
to establish gradually a scheme of wage relation- 
ships based upon principles. It should be kept in 
mind, however, that the reasons for their accept- 
ance are of a practical nature, and that no 
theoretical considerations compel an unquestion- 
ing acceptance of them, as is sometimes urged. 

3. — Since, on practical grounds, it is held that 
any attempt to create an ordered scheme of wage 
relationship must begin by accepting existing 
wage levels, it may be judged by some that the 
scheme that is sought could be developed merely 
by maintaining these relationships. That would 
mean that existing differentials would be main- 
tained as customary differentials. That policy, it 



THE REGULATION OF WAGE LEVELS 215 

is true, would have the advantages of simplicity 
and continuity. But it would be found impossible 
to maintain. For the scheme of wage relationship 
to which, it would give rise would lack the au- 
thority of principle — without which no scheme of 
wage relationship will receive voluntary and 
steady support from the various groups of wage 
earners. The wage earners will not voluntarily 
accept a place in the industrial scale, unless it is 
felt that the scale is the result of the application 
of rules of acknowledged fairness. The existing 
scale of wage relationship, however, has not been 
determined either by considerations of justice or 
of the general interest. Nor has it, as is some- 
times claimed, the authority of being altogether 
necessary. It is the product of a multitude of 
forces, some of which may be given different im- 
portance in the future than they had in the past. 
It is easy to foresee the difficulties with which 
a policy which planned to create an ordered 
scheme of wage relationships by maintaining ex- 
isting differentials would be confronted. Claims 
will constantly be presented by particular groups 
for some improvement in their economic position. 
These claims could not be disregarded merely on 
the score that they contravened the scheme of 
established differentials. The issue that would 
arise is clearly exemplified by statements made 
in the course of two of the most important indus- 
trial conflicts that occurred in England of recent 



216 THE SETTLEMENT OF WAGE DISPUTES 

years. "We claim," the Secretary of one of the 
Shop Committees of the Molders' Union wrote in 
defense of the demand of his union for differential 
treatment under an award made for the whole of 
Engineering Trades — which demand provoked the 
molders' strike, "we claim that our work is totally 
different in many ways from the other depart- 
ments in the engineering industry. It is arduous, 
dirty, dangerous, hot, unhealthy, and highly 
skilled, and we claim separate treatment on these 
grounds. There is no other department in the 
engineering industry with so high a percentage 
of sickness or accidents. . . . You mention the 
employers' attitude towards the molders' applica- 
tion — a refusal to grant to molders any separate 
consideration because other classes of workers 
would also expect it. To me such an attitude is 
both unfair and untenable. If the molder can 
prove that his conditions of working are vile, dan- 
gerous and unhealthy, it is surely fair to ask for a 
proper recompense for such work. . . ." * And 
consider this extract from one of the reports of 
the Coal Industry Commission, signed by six 
members of the Commission. "It will, however, 
be said that desirable as may be an improvement 
in the miners' conditions, the industry will not 
bear the cost of a reduction in hours, even if the 
aggregate output is, by an increase in numbers 
and, therefore, in the wages bill restored to its 
pro-war level, without involving a considerable 
1 Letter printed in London Times, January 13, 1920. 



THE REGULATION OF WAGE LEVELS 217 

advance in the price of coal, with possible adverse 
effects on our export trade, on manufacturing in- 
dustry generally, and on the domestic consumer. 
We have to observe that if the improvement in 
the miner's standard of life is really required for 
the greater efficiency of the industry itself, or in 
the national interest, the fact that it might involve 
a temporary increase in the price of coal would 
not be conclusive against it. Moreover, if hours 
of labor have been reduced in other industries, 
and if the standard of life has been advanced 
among other sections of the community, it would 
be unsuitable to withhold a similar advance from 
the miners, merely because the others have got in 
first." x 

In short, under any scheme of wage relationship 
based on the preservation of existing differentials, 
it could not be established in the face of any claim 
that the relative position of a group was deter- 
mined either by consideration of justice, or by 
implacable necessity. Therefore, that scheme 
would not receive the constant and widespread 
support requisite to its successful operation. 2 

1 Report of the Coal Industry Commission (1919), Majority 
Report, pages 15-16. For another interesting case, see that 
of Various Toronto Firms vs. Pattern Makers under the 
Canadian Industrial Disputes Act, in which case the pattern 
makers claimed differential treatment over machinists and 
molders. Reported in Jan., 1919, Canadian Labor Gazette. 

2 The various courts in the Australian dominions tended on 
the whole to confirm existing differentials, occasionally chang- 
ing the relative position of particular groups, when it has 
seemed clear to the court that the wages of these groups as 
compared to other groups is "unreasonable" considering all 



218 THE SETTLEMENT OF WAGE DISPUTES 

So far then, in this chapter, two conclusions 
have been reached. Firstly, that the course of 
wage settlement in each industry or occupation 
cannot be a process entirely independent from the 
course of wage settlement in every other industry 
and occupation. Secondly, that although the first 
step in the establishment of any scheme of wage 
relationship is the acceptance of existing wage 
levels and differentials, the policy must provide 
for the reconsideration of these diffierentials in 
the light of affirmed principles; with the aim of 
gradually evolving in industry an ordered scheme 
of wage relationship, upheld by common consent 
to the principles on which it rests. 

4. — Thus we are put under the necessity of at- 
tempting to formulate principles or standards by 
which all claims made by groups of wage earners 
for reconsideration of existing wage differentials 
could be judged. This is not a task to be lightly 
undertaken. Nor is it to be expected that such 

those factors which are considered to form the ground of 
"reasonableness" in the matter of differentials. Thus Jus- 
tice Brown of the Industrial Court of South Australia 
has expressed himself on this very subject. "In the matter 
of such perplexity some guidance is afforded to the court by 
custom. It seems to me I cannot do better than proceed 
on this basis. I shall state the preexisting wage, consider 
whether it is prima facie unreasonable applied to preexisting 
conditions, and then if I find it not prima facie unreason- 
able, 1 shall consider whether any variations of the wage 
should be made in view of conditions now existing." (Hook 
Hoys' Case — South Australia Industrial Reports, Vol. I, 1916-7, 
page 29.) 



THE REGULATION OF WAGE LEVELS 219 

clear principles of wage relationship can be elab- 
orated as to escape the necessity of deciding many 
claims by an appeal to compromise and by taking 
refuge in a general sense of equity. All that it is 
hoped to do is to suggest certain lines along which 
a satisfactory formulation of the required prin- 
ciples of wage relationship may be sought. 

It might be possible gradually to construct such 
an ordered scheme of wage relationship as has 
been declared essential to industrial peace by ap- 
plying to successive wage controversies, as they 
arose, two central doctrines. These doctrines are : 
Firstly, the doctrine of the unity of the wage in- 
come and of the wage earners — by which is meant 
that the wages of all groups should be regarded 
as part of one general wage income, to be shared 
out among all wage earners in as nearly equal pro- 
portions, as is practicable, without special favor 
to any one. And, secondly, what may be called 
for a lack of a better name, the doctrine of special 
reward — by which is meant, that the wage dif- 
ferentials between the standard wage levels of 
different types of labor should be regarded as 
special rewards, given in order to make it reason- 
ably certain that industry will be provided with 
at least the existing proportion of the more skilled 
grades of labor, and to make it reasonably certain 
also that the more arduous, irregular, dangerous 
and disagreeable work will command the service 
of as much labor as at present. 

It should be observed, first of all, that neither 



220 THE SETTLEMENT OF WAGE DISPUTES 

of these two doctrines upholds the rights of par- 
ticular groups of wage earners. They aim to bring 
all wage earning groups to perceive that they are 
part of a larger whole; they emphasize the fact 
that the wages of each group are what they are, 
more because the total wage income is what it is, 
than because of the special type of work per- 
formed by the group. They, however, recognize 
the necessity of giving extra reward for the train- 
ing and skill or natural ability required for par- 
ticular kinds of work, for more than common 
danger or disagreeableness incurred in the per- 
formance of particular kinds of work, and the like 
— in short, for all those factors which elevate a 
job above what is called common labor. 

As an applied doctrine, the doctrine of the unity 
of wage income and of the wage earners means 
that the same wage should be paid throughout 
industry for work which requires approximately 
the same human qualities, and which makes ap- 
proximately the same demands upon the indi- 
vidual. The common effort involved in produc- 
tion is emphasized, rather than the differences be- 
tween the work performed by workers in different 
parts of the field of production. As an applied 
doctrine, the doctrine of extra reward means that 
certain groups of wage earners should receive 
higher wages than other groups, because the work 
they perform is deemed to require considerably 
higher individual qualities or talents, or to make 
considerably greater demands upon the individuals 



THE REGULATION OF WAGE LEVELS 221 

engaged upon it. 1 The extra reward should not be 
regarded primarily as an ethical right; but rather 
as a payment to ensure the development and 
exercise of those higher qualities and talents re- 
quired in the performance of the more skilled in- 
dustrial tasks, and to ensure also the performance 
of the more arduous, irregular, disagreeable, and 
less desirable industrial tasks. It is a recognition 
of the fact that the spirit of serving without direct 
reward is not a sufficiently strong and constant 
motive to persuade men to make the special 
efforts, or to undergo the special disadvantages 
required for some kinds of work. It is an incen- 
tive to the development of those abilities and 
talents which are relatively scarce in industry; 
it is also an incentive to the undertaking of those 
tasks which the run of men, at any given time 
and place, regard as unusually difficult or unde- 
sirable. The extra reward for different kinds of 
work which are judged to require for their per- 
formance qualities equally difficult to secure, and 
which subject individuals to the same hardships 
should be the same. The test of the special re- 
ward must be in any particular case, the amount 
necessary to secure the performance of the work 
in question. 

*It is in this light that the Commonwealth Court of Aus- 
tralia looks upon its secondary wage. "The secondary wage 
is remuneration for any exceptional gifts or qualifications not 
of the individual employee, but gifts or qualifications neces- 
sary for the performance of the functions." H. B. Higgins, 
"A New Province for Law and Order," Harvard Law Review, 
March, 1915. 



222 THE SETTLEMENT OF WAGE DISPUTES 

The conscientious and consistent application of 
these two doctrines in settlement of wage contro- 
versies which involve the reconsideration of estab- 
lished differentials should result in the gradual 
building up of an ordered scheme of wage relation- 
ship, such as is sought. This scheme would rest 
upon fairly widely held ideas as to the most suit- 
able basis for wage differences. It would not make 
greater call upon the human sense of fairness than 
must be made by any plan which hopes to secure 
industrial peace by getting all parties to industrial 
conflict to agree upon rules or principles for the 
settlement of the claims of each. Whether that 
aim, itself, is a fanciful one, need not be again 
debated here. 

5. — Lest it appear that the above proposals have 
been put forward without giving due weight to 
their defects, it is now well to consider certain 
criticisms to which they may be fairly open. Two 
objections, in particular, are likely to be made. 
One is of practical nature, the other of a theo- 
retical nature. They may be considered in that 
order. 

The objection of a practical nature is that it 
will not be possible to apply the suggested prin- 
ciples either accurately or consistently, and this 
for two reasons. Firstly, it may be asserted that 
the application of the proposed doctrines would 
require a scientific comparison of the characteris- 
tics of different kinds of work, which comparison 
is declared to be unobtainable. Secondly, it may 



THE REGULATION OF WAGE LEVELS 223 

be said that in order to fix such wage differentials 
as are reasonably certain to accomplish the ends 
for which they are set, it will be necessary to 
have a precise knowledge of many facts and forces. 
This knowledge may be declared to be unob- 
tainable. 

No simple or very final answer can be returned 
to these doubts. It must be admitted that it will 
always remain difficult to compare occupations 
except in general descriptive terms. The relative 
training and talents required for different kinds 
of work, and the relative demands made upon the 
individual by different kinds of work will always 
remain, to a great extent, a matter of opinion. It 
is also true that only a general knowledge can be 
obtained of the factors governing the supply of 
any particular sort of labor at a given time, and 
the probable effect of any wage change upon that 
supply. The differentials which would be estab- 
lished from a consideration of such material could 
not claim to be more than a practical approxi- 
mation to the differentials which would carry out 
the intention of the policy. 

Still, scientific method could be pushed further 
than it has been in the comparison of occupations. 
The statements of the various interested parties 
would be a valuable guide in the estimate of occu- 
pations. Furthermore, only the major relation- 
ships between occupations would have to be taken 
into consideration. For example, if the question 
at issue was whether the wages of miners were 



224 THE SETTLEMENT OF WAGE DISPUTES 

too low as compared with wages in other indus- 
tries — that is to say, whether a demand on the 
part of the miners for an improvement in their 
relative economic position was justified — only the 
most important of mining occupations would have 
to be taken into account in reaching a decision. 
There would be small risk of error in applying a 
decision, based upon a study of the work per- 
formed and of the income received in the most 
important mining occupations, to the less impor- 
tant mining occupations also. And indeed such 
would prove probably the only practicable policy. 
Furthermore, revision of the existing differentials 
would be undertaken only when the case for re- 
vision seemed definite and clear. As for example, 
it was clear in England before the war, that rail- 
road labor was underpaid ; or, as was clear to the 
whole of the recent President's commission on the 
wages of coal miners, that the wages of the miners 
were too low, relative to wages in other industries 
— though the commission differed on the amount 
of wage increase to be awarded. 

But perhaps the most significant answer to those 
objections which rest on practical grounds is the 
fact that any wage level that might be set for 
any occupation under the proposed principles 
would be but the minimum standard wage for 
that occupation. And no element in the whole 
policy of wage settlement should stand in the way 
of the payment of a higher wage than that fixed 
by the central authority for any type of work. 



THE REGULATION OF WAGE LEVELS 225 

Thus no fear would have to be entertained that 
any industry would be faced with a shortage of 
labor due to the difficulty of getting precise knowl- 
edge on which to base wage differentials. 

Here, indeed, we approach very close to that 
other objection which may be put forward on 
theoretical grounds. Which objection is that all 
attempts at revision of existing wage differentials 
would involve a risk of producing, on the one hand, 
a shortage of certain kinds of labor, and, on the 
other hand, an oversupply of other kinds. It is 
reasoned that in spite of every effort of careful 
calculation of wage differentials, some danger of 
over or undersupply of certain kinds of labor will 
always be present. 

These fears would be based upon a miscon- 
ception of the nature of the policy of wage settle- 
ment that is proposed. As has already been em- 
phasized, the wage level that would be fixed 
for any kind of labor would be but a minimum 
standard wage. There is no part of the proposed 
policy of wage settlement which would interfere 
with the payment of higher wages than the stand- 
ard minimum. Therefore, no industry would find 
itself unable to secure the labor it required merely 
because of the differentials established by the cen- 
tral authority. Each industry would still retain 
all its powers of bargaining for the labor it needs. 
Nor, on the other hand, would there be any seri- 
ous danger that the wage rates set for any indus- 
try or occupation would be so high as to add to 



226 THE SETTLEMENT OF WAGE DISPUTES 

any already existing possibilities of oversupply of 
certain types of labor. For, after all, the central 
authority would consider the question of the re- 
vision of existing wage differentials only when the 
question is pressed upon it by the failure of the 
workers and employers to agree. The central au- 
thority would not be likely to declare wage rates 
higher than those contended for by the wage 
earners or lower than those contended for by the 
employers. And it is not too much to presume 
that in practically all cases neither of the two sides 
presses claims from which they do not expect to 
benefit. The employers are not likely to seek 
such wage rates as will not procure the needed 
labor supply ; and only in rare cases are the wage 
earners likely to press for increases of wages that 
would bring about an increased measure of unem- 
ployment. 1 When those rare cases arise, indeed, 

1 Mr. and Mrs. Webb have described aptly the usual 
trade union calculations in the formulation of their claims. 
"The Trade Unionist has a rough and ready barometer to 
guide him in this difficult navigation. It is impossible, even 
for the most learned economist or the most accomplished 
business men, to predict what will be the result of any par- 
ticular advance of the Common Rule. So long, however, as 
a Trade Union without in any way restricting the numbers 
entering its occupation, finds that its members are fully em- 
ployed, it can scarcely be wrong in maintaining its Common 
Rules at the existing level, and even, after a reasonable in- 
terval, in attempting gradually to raise them. . . . To put it 
concretely, whenever the percentage of the unemployed in 
any particular industry begins to rise from the 3 or 5 per 
cent characteristic of 'good trade 1 to the 10, 15 or even 25 
per cent experienced in 'bad trade' there must be a pause 
in the operatives' advance movement." "Industrial Democ- 
racy," pages 738-9. 



THE REGULATION OF WAGE LEVELS 227 

it will be the duty of the central authority to pro- 
tect the interested parties against their own bad 
judgment. 

Thus it cannot be admitted that the application 
of the proposed principles would produce an in- 
tensification of the already existing possibilities 
that particular industries or occupations would be 
short of the kind of labor they need, or that they 
would be overcrowded. This conclusion is greatly 
strengthened by the thought that under our pres- 
ent practices, wage settlements are constantly 
being reached without any reward whatsoever for 
the disturbance of customary differentials; and 
serious maladjustments in the supply of labor do 
not often result because of that. 

6. — A note upon the procedure by which it is 
expected that the proposed principles would be 
brought into operation may help to explain away 
remaining doubts. First of all, it may be empha- 
sized that nothing in these proposals contemplates 
the discontinuance of collective bargaining 
throughout industry. Rather the creation of joint 
industrial or occupational boards or councils 
(those suggested in the course of the living wage 
discussion) is advised. Only when any wage ques- 
tion cannot be settled peacefully by collective 
bargaining is it proposed that the central au- 
thority should enter into the dispute. 

It is to be expected that as the principles fol- 
lowed by the central authority in its decisions be- 



228 THE SETTLEMENT OF WAGE DISPUTES 

come known and understood — that is, as the prob- 
able result of disagreement, and of reference to 
the central authority become predictable — the 
agreements reached by collective bargaining would 
tend to approximate those which would result 
from reference to the central authority. For ex- 
ample, if a series of decisions expounded the doc- 
trine that the existing relationships between the 
wages of the miners, railway conductors, and 
bricklayers are in accordance with the principles 
recognized by the central authority, the course 
of negotiation in these occupations will be gov- 
erned, to some extent, by that knowledge. Such 
an outcome is to be expected, no matter what the 
principles upheld by the central authority — pro- 
vided they are consistently upheld. Thus Judge 
Higgins records of the Australasian experience 
that "It is quite common now for the parties to 
ask the decision or guidance of the Court on a 
few main subjects in dispute and then to agree 
as to all the other items — even hundreds of items 
— in the light of the Court's findings ; anticipating 
the application of the Court's principles." 1 

Since we are on the subject of the method and 
machinery of application of the policy of wage 
settlement, one other aspect of the matter may 
be briefly noted. That is, that if any policy of 
wage settlement is to succeed, the course of wage 

1 H. B. Higgins, "A New Province for Law and Order/' 
Harvard Law Revii W, Dec, 1920, page 114 



THE REGULATION OF WAGE LEVELS 229 

decision must be kept as free from all political 
interference as possible. 1 Spending departments 
should not be given powers of decision which clash 
with those of the central authority. Appeals to 
the higher executive officers of the state must be 
avoided to the utmost possible extent. Conjecture 
as to the measure in which these conditions can 
be realized in the United States at the present 
time may be withheld. But unless they are 
realized in a high degree, wage settlement will 
continue to be a matter of force and opportunism. 
Freedom from political interference can be ob- 



1 Justice Higgins, the head of the Commonwealth Court 
of Australia, has recently resigned because of the action of 
the legislature in providing that the executive may set up 
special and independent tribunals of appeal above the Court 
of Arbitration. His letter giving the reasons for his resigna- 
tion (printed in the Melbourne Argus, Oct. 26, 1920), gives 
most convincingly the case for freedom from political inter- 
ference. One passage of explanation in it is as follows: 

"On the other hand, a permanent court of a judicial char- 
acter tends to reduce conditions to system, to standardize 
them, to prevent irritating contrasts. It knows that a reck- 
less concession made in one case will multiply future troubles. 
A union that knows that a certain claim is likely to be 
contested by the court will bring pressure to bear for a spe- 
cial tribunal; and the special tribunal appointed by the gov- 
ernment will be apt to yield to demands for the sake of 
continuity in the one industry before it, regardless of the 
consequences in other industries. The objectives of the per- 
manent court and of the temporary tribunals are, in truth, 
quite different — one seeks to provide a just and balanced 
system which will tend to continuity of work in industries 
generally, whereas the other seeks to prevent or to end a 
present strike in its own industry." See also Lord Askwith's 
"Industrial Problems and Disputes" for another expression of 
the same view. 



230 THE SETTLEMENT OF WAGE DISPUTES 

tained, and the elimination of the necessity for 
frequent appeal to the higher executive officer? 
of the state will be possible, only if the policy of 
wage settlement which is adopted has the vigor- 
ous support of all groups immediately concerned 
in wage settlement. 



CHAPTER XI— THE REGULATION OF 
WAGE LEVELS— (Continued)— 

WAGES AND PRICES 

Section 1. The scheme of wage relationship must recom- 
mend itself as just to the wage earners and the com- 
munity in general. The ultimate distributive question to 
be met is the division of the product between profit and 
wages. — Section 2. Provision for the adjustment of wages 
to price movements would aid, however, towards reach- 
ing distributive goal. A policy of adjustment suggested. 
— Section 3. The difficulty of maintaining scheme of 
wage relationship of wages adjusted to price movements. 
The best method of adjustment a compromise. 

1. — In the last chapter the reasons for seeking 
an ordered scheme of wage relationship in indus- 
try were discussed, and some suggestions were 
made in regard to such a scheme. One essential 
to its success was pointed out. That is, that under 
it the distribution of the product of industry 
should recommend itself as just to the wage 
earners and the community in general. The 
possibility of satisfying this requirement remains 
to be considered. 

The ultimate distributive question to be met in 
any attempt to formulate a policy of wage settle- 
ment is the distribution of the product of industry 

231 



232 THE SETTLEMENT OF WAGE DISPUTES 

between wages and profits (rent incomes, in the 
Ricardian sense, being left out of the question). 
It is entirely conceivable that a policy of wage 
settlement should be put into practice which 
would take note only of the facts of this relation. 
However, there are distinct advantages to be ob- 
tained by taking note of an intermediate relation. 
That is the relation between wages and changes 
in the price level. 

The relation between wages and general price 
movements has been discussed. It has been seen 
that movements in the general level of prices affect 
the outcome of distribution. They occasion 
changes in the distributive situation; and these 
changes may be desirable or undesirable — hav- 
ing reference to the distributive result that is 
sought. Any plan by which such changes as are 
undesirable are prevented from taking place 
would contribute, therefore, to the attainment of 
the aims of the proposed policy; and would be a 
valuable adjunct to the policy. The conclusions 
reached in the previous discussion on this subject 
make up a plan suitable for the purpose. They 
may now be fitted into the body of these proposals. 
Then in the following chapter that most difficult 
problem of wage settlement can be considered — 
the problem of governing the distribution of the 
product between profit and wages in order that 
a just distribution may result. 

2. — The results of the discussion in Chapter V 



THE REGULATION OF WAGE LEVELS 233 

concerning a plan for the adjustment of wages to 
price change may be applied at this point without 
further comment. 

The central authority in its decisions should 
take note of all changes in the approved price 
index number since the time when the wage rates 
which are up for reconsideration were fixed. It 
should then in its aw r ards adjust these wage rates 
to price changes in accordance with the following 
policy. It need hardly be explained that other 
considerations besides the fact of price change may 
enter into the award, as the adjustment of wages 
to price change is merely one part of a larger 
policy. 

The measure of price change by which the cen- 
tral authority should be guided — that is, the ap- 
proved index number, — should be the movements 
of the index number of the prices of all important 
commodities produced within the country; this 
index number to be so weighted as to give a de- 
fined importance (50 per cent, suggested) to the 
prices of those classes of foodstuffs, clothing, hous- 
ing accommodations and other commodities, upon 
which the wage earners spend the larger part of 
their income. It will be noted that this measure 
of price change is the same as that used in the 
adjustment of wages prescribed under the living 
wage policy. And, as was recommended in the 
discussion of living wage policy, so it is recom- 
mended here, that adjustments should not be 
undertaken unless the index number of prices has 



234 THE SETTLEMENT OF WAGE DISPUTES 

moved at least 5 per cent., and that adjustment 
should not be more frequent than twice a year. 

In regard to the actual policy of adjustment to 
be pursued in periods of rising and falling prices, 
here also, save in one important respect, the same 
policy that was sketched out for living wage ad- 
justments should be followed. 

3. — The one point in which it may be advisable 
to depart from the policy laid down for living 
wage adjustments is in regard to the amount of 
wage change that should be undertaken for move- 
ments in the price level. 

In the earlier discussion it was suggested that 
wherever wages were adjusted to price changes, 
the adjustments should be on the basis of equal 
percentages. If this basis were to be used in ad- 
justing the wages of all other groups of workers 
it is evident that during periods of changing prices 
there would be a different set of wage differen- 
tials for every position of the price level. And, 
furthermore, during periods of rising prices, the 
lowest paid classes of workers — those who could 
do least to meet the rise in the cost of living by 
changing their consumption habits — would receive 
the smallest wage increases. 

A great diversity of practice characterized the 
attempts at adjustment which were made during 
the period of rapid price increase inaugurated by 
the war. No two agencies of adjustment used the 
same basis. Possibly the most widespread prac- 
tice has been to increase all wage levels by the 



THE REGULATION OF WAGE LEVELS 235 

same absolute amount — which amount has been 
ordinarily calculated as a percentage of some basic 
wage (frequently the living wage). The advan- 
tages of that method are firstly, its simplicity, and 
secondly, the fact that if it favors any groups, it 
favors those whose needs are greatest. Justice 
Higgins has justified it as follows: "When the 
Court has increased the basic wage because of 
abnormal increase of prices due to the war it has 
not usually increased the secondary wage. It has 
merely added the old secondary wage, the old mar- 
gin, to the new basic wage. It is true that the ex- 
tra commodities which the skilled man usually 
purchases with his extra wages become almost as 
indispensable in his social habits, as the commodi- 
ties purchased by the unskilled man, and have no 
less increased in price; but the Court has not seen 
fit to push its principles to the extreme in the ab- 
normal circumstances of the war, and the mode- 
rate course taken has been accepted without de- 
mur." 1 

1 H. B. Higgins, "A New Province for Law and Order," 
Harvard Law Review, Jan., 1919. The Commission acting 
under the Canadian Industrial Disputes Act, carried this line 
of reasoning to its further logical consequences by awarding 
in some cases higher absolute increases to the lowest paid 
men, and so on up the scale to the highest paid men who 
received the smallest increase. The large increases granted 
to the lowest paid men were justified by the Commission as 
necessary to bring their wages up to a living wage level. See, 
for example, the Report of the Commission on Disputes in 
Coal Mining and Other Industries in Nova Scotia. Carta- 
dian Labor Gazette, July, 1918. For a similar policy based 
on the same grounds, see the "Arbitration Award in Certain 
Packing Industries in the United States." U. S. Monthly 
Labor Review, May, 1918. 



236 THE SETTLEMENT OF WAGE DISPUTES 

Still as a permanent policy, the suitability of 
this method is not beyond question. The problem 
to be faced in the choice of method is, after all, 
this. Given a scheme of wage differentials, which 
are in accord with certain defined principles, at a 
given position of the price level, what method of 
adjustment is best calculated to produce such dif- 
ferentials as will be in accord with these principles, 
at all positions of the price levels? That sounds 
like a problem in astronomy. But it is not. It can 
be more understandably, but less accurately, put 
by asking, what system of adjustment is best cal- 
culated to maintain the same relative position of 
the various groups of wage earners throughout all 
price movements? 

Under either of the two methods touched upon 
— that of change by equal percentages, and that of 
change by the same absolute amount for all 
groups — the differentials cannot be held in close 
accord with any such original principles of wage 
relationship as have been suggested. It cannot 
be helped. We have come to another point at 
which the aims of policy can only be imperfectly 
realized. 

It seems to me that the best method would be 
some sort of compromise between the two alterna- 
tives that have been presented. A compromise 
would make allowance, firstly; for the fact that 
in times of rising prices, those groups whose wages 
are lowest cannot meet the rise in the cost of living 
by changing their consumption habits as easily 
as can the more fortunately placed groups, and 



THE REGULATION OF WAGE LEVELS 237 

secondly ; in times of rising prices, the movements 
of the wage earners from industry, or from occu- 
pation to occupation are governed, within limits, 
by calculations of the absolute change in the wages 
paid for different kinds of labor, rather than by 
calculations of relative change. It nevertheless 
would prevent the relative position of different 
grades of labor from changing so radically as to 
lead to great discontent and possibly to derange- 
ments in the distribution of the labor supply. 

It can be claimed, in addition, for this com- 
promise method that its results would be in ac- 
cord with the general trend of changes in the dif- 
ferentials that have occurred in the past in periods 
of rapid price movement. An inspection of the 
available material seems to show that in times of 
rapidly rising prices the relative differentials be- 
tween the lower grades of wage earners and the 
upper grades decrease, while the absolute dif- 
ferentials increase— and the reverse in times of 
rapidly declining prices. They are in accord, for 
example, with the results obtained by analyzing 
the course of differentials during the war (1914- 
1919) in the industries for which wage data was 
gathered by the National Industrial Conference 
Board — "Report Wartime Changes in Wages." 
The data extends over the Metal, Cotton, Wool, 
Silk, Boot and Shoe, Paper, Rubber and Chemical 
Manufacturing Industries. If the wage earners 
are classified into five groups according to their 
pre-war wages, it is found that the relative wages 



238 THE SETTLEMENT OF WAGE DISPUTES 

of the least paid groups (pre-war standards) in- 
creased most, and so on in order to the best paid 
groups, the relative wages of which increased 
least; the absolute increases, however, are in ex- 
actly the opposite order. 1 They are borne out also 
by Mitchell's studies of price movements in the 
United States. 2 

In conclusion, it may be said, that no matter 
which of the above methods is adopted, it should 
be applied with as much consistency as can be at- 
tained. The process of wage adjustment to move- 
ments of the price level cannot be left in the 
field of guess work, where it now rests, without 
giving rise to much quarreling and discontent. 

lr The figures are: 



(Wage groups) 




(Group average) 


1914, wages 


Relative increase 


Absolute increase, 


earnings per hour 


of wages 


earnings per hour 


.15-.20 


208% 


.193 


.20- .25 


187% 


.188 


.25-.30 


185% 


.230 


.30-.35 


184% 


.266 


.35-.40 


174% 


.268 



Such figures as these are not, of course, sufficient ground 
for confident generalization, but they support an imputation 
that the compromise method does furnish the best solution 
of the difficulties the problem presents. 

a See W. C. Mitchell, "Business Cycles," page 134. Also 
W. C. Mitchell, "History of the Greenbacks, ,, pages 33-37, 
123-145. 



CHAPTER XII — THE REGULATION OF 
WAGE LEVELS— (Continued) 

WAGES AND PROFITS 

1. 

Section 1. The profits return in industry, under any policy 
of wage settlement, will be closely scrutinized. — Section 

2. The possibility of measuring a "fair" profits return 
for all industry discussed. A method suggested. — Section 

3. Would the principles of w T age settlement worked 
out so far, produce a fair profits return? An open ques- 
tion. — Section 4. The scope and form of any measure 
designed to assure the desired distributive outcome can 
be discerned. — Section 5. The various steps in the formu- 
lation of such a measure reviewed. A measure tentatively 
suggested. — Section 6. The difficulties of calculating w T age 
changes called for under the suggested measure. — Section 
7. The chief practical weaknesses of the suggested meas- 
ure examined. — Section 8. It would be open to theoret- 
ical criticism also. The alternatives even less satisfac- 
tory. 

1. — We can now enter upon the further question 
of whether the principles so far formulated, if used 
in wage settlement, would produce such distribu- 
tive results as would justify them to the wage 
earners and the community in general. It need 
hardly be said that the criterion of justice which 
will be applied by public opinion to any policy of 

239 



240 THE SETTLEMENT OF WAGE DISPUTES 

wage settlement will not be a simple and clearly 
defined rule, but will be, rather, one joint in a 
loosely articulated social philosophy. 

The distributive justice of any set of wage prin- 
ciples will be judged by the shares of the product 
of industry which take the form of wages and 
profits, respectively. It is true that general satis- 
faction with them will be largely governed by the 
course of real wages after they have been in force 
a while. If real wages tended to increase in the 
period following their adoption, they would re- 
ceive far greater approval and much sturdier de- 
fense than if real wages fall during that period. 
Most witnesses of the Australian experiments in 
wage settlement make that point clear. 1 But in 
either case, if the organizations of the wage earners 
in the United States become as powerful as they 
are in England to-day, and if the class-conscious- 
ness of the wage earners becomes as acute, any 
policy of wage settlement will be severely scruti- 
nized in regard to the profits return prevailing 
throughout industry also. If, with the principles 
in force, the general level of profits throughout the 
field of industry consistently and considerably ex- 
ceeded what was deemed to approximate a fair 
return, it will be held that they give the wage 
earners too small a share in the product of the in- 
dustry. If the general level of profits throughout 
the field of industry tended to approximate a re- 

*M. B. Hammond. "Wage Boards in Australia/ 1 Quarterly 

Journal of Economics, November, 1914, February, March, 
1915. E. Aves, "Report on Wa^e Boards and Industrial and 
Conciliation Acts of Australia and New Zealand" (1908). 



THE REGULATION OF WAGE LEVELS 241 

turn thought to be fair, the principles will recom- 
mend themselves to the wage earners and to the 
community in general, as just. It may be added 
that the opinion held in regard to the justice of the 
principles of wage settlement may also be influ- 
enced, in some degree, by the distribution of the 
profits return in industry. If a comparatively 
few great industrial corporations earn very great 
profits, it is likely to arouse greater dissatisfaction 
than if the same amount of profits are earned by 
a larger number of enterprises. It is beyond the 
scope of any policy of wage settlement, however, 
to control the distribution of profits among the 
enterprises engaged in an industry. 

There are some groups who would argue that no, 
division of the product of industry is fair unless it 
gives to the wage earners the whole of the prod- 
uct. Such a view, of course, amounts to a de- 
sire to revise the whole of the present economic 
system fundamentally. No policy of wage settle- 
ment akin to that put forward in this book could 
win favor in their eyes. And if their opinion 
should become dominant, industrial peace would, 
have to be sought by arrangements far different 
form those under discussion. For those arrange- 
ments rest on the supposition that the country 
will continue to desire to depend, in the main, 
upon private accumulation for capital, and indi- 
vidual ambition for business leadership. 

2. — It is possible by bringing into balance a nu- 
merous set of factors, to give a reasonably definite 



242 THE SETTLEMENT OF WAGE DISPUTES 

meaning to the idea of a fair profits return. That 
is to say, by weighing all relevant considerations, 
it is possible to define a general level of profits for 
industry as a whole, which would represent a just 
and sound division of the product of industry be- 
tween wages and profits. The relevant considera- 
tions are those which will be likely to hold an im- 
portant place in the better informed sections of 
public opinion during the period for which these 
proposals are intended ; and which are admissible 
as sound and pertinent, on the supposition that the 
industrial system is to continue to depend mainly 
upon private initiative and private accumulation. 
The most important of these considerations are, 
in my opinion, as follows: First: that the ethical 
ideas of reward according to need, or reward ac- 
cording to sacrifice, would call for the elimination 
of the greatest present inequalities of reward ; and 
that these ethical ideas must be given rank among 
the factors which deserve real consideration when 
arrangements affecting the distribution of the 
product are being made. Secondly: the service 
of capital in effective production, the sacrifice 
involved in much accumulation, and the risk in- 
volved in much investment; the great need of as- 
suring continued capital accumulation and invest- 
ment. Likewise, the importance to industry of 
active and enterprising leadership. Thirdly: the 
social and economic evil effects of great inequality 
of wealth. Fourthly: the fact that the health, en- 
ergy, spirit, and intelligence of the wage earners 



THE REGULATION OF WAGE LEVELS 243 

are factors of high importance in the creation of 
a stable and effective industrial regime, and that 
the development and display of these qualities by 
individuals are affected by their economic condi- 
ditions and surroundings, here and now. Like- 
wise, the importance of giving the best possible 
opportunity to all to develop their natural ability. 

The general level of profits that would be settled 
upon by comparing and weighing these considera- 
tions could be defended as just and sound. The 
figure (which would be expressed in the form of a 
percentage, e.g. 12 per cent.) derived from the bal- 
ance of these factors could be put forward as the 
mark of just distribution. The distributive goal 
for the policy of wage settlement would be to 
achieve a division of the product between wages 
and profits, such that the general level of profits 
throughout the field of industry (the basis of cal- 
culation of which will be considered at a later 
point) would approximate the figure defined as 
just. 

It is plain that if the suggested method is used 
to define a just level of profits, differences of 
opinion will manifest themselves in the process. 
The facts and circumstances that would have 
to be studied cannot be subjected to exact mea- 
surement. For example, the possible bad social and 
economic effects which may be produced by vari- 
ous degrees of inequality of distribution can only 
be guessed at in a general way. Or, to take another 
example, the motives and conditions which govern 



244 THE SETTLEMENT OF WAGE DISPUTES 

the bulk of private accumulation and the sacri- 
fices involved therein are questions about which 
controversy continues to range. The profits re- 
turn that one man may judge ample to assure an 
adequate flow of accumulation and investment 
will not appear to be so, in another man's judg- 
ment. Indeed, even differences in the general 
philosophy with which all men parade through 
life will lead to differences of opinion. For ex- 
ample, one man may believe a community to be 
better off if every man's income is increased some- 
what, though the inequality of wealth within the 
community be thereby increased; while another 
man may believe that the poorer community, with 
the lesser inequality of wealth is likely to be more 
happy, and perhaps, in the end more prosperous. 
In spite, however, of the existence of such ex- 
tensive ground for differences of opinion, it 
seems to me that an agreement may be expected 
which will be fair and sound enough to be ac- 
cepted as a serviceable criterion of the distribu- 
tive consequences of the policy of wage settle- 
ment. 

3. — What grounds, if any, are there for the be- 
lief that the principles of wage settlement so far 
proposed would bring about a division of the prod- 
uct between wages and profits that would meet 
the test of just and sound distribution suggested 
above? 

The principles, so far proposed, leave the deter- 



THE REGULATION OF WAGE LEVELS 245 

mination of the profits return predominantly to 
the action of industrial competition, reenforced by 
the action of public opinion in the direction of 
preventing the return from mounting to an obvi- 
ously excessive point. They offer no safeguard 
against the reduction of the profit return below 
that point set as the mark of just and sound dis- 
tribution, save the public will to continue the 
present system and a general knowledge of the 
motives and conditions upon which it rests. Nor 
could they very well. 

It is true that the enactment of the principles 
suggested up to this point would mean the im- 
position of certain genuine restrictions upon the 
actions of those who direct industry, as for ex- 
ample, in connection with the living wage pro- 
gram. It would give all wage earners the 
benefits of organization. It would make for rapid 
and certain compensation for price movements. It 
would prevent wage reductions merely because 
of the poverty of any group. Nevertheless, if 
the analysis of distribution made earlier in the 
book is substantially correct, the answer to the 
question at the head of this section must be 
that there would be no very compelling ten- 
dency for distribution to result justly, under the 
enforcement of the wage principles so far pro- 
posed. The distributive result would still depend 
largely upon the reality and intensity of indus- 
trial competition, upon the strength, activity, and 
foresightedness of the wage earners' organizations, 



246 THE SETTLEMENT OF WAGE DISPUTES 

upon the will and spirit of the directors of indus- 
try, and upon the quality and liveness of public 
opinion. That admission can be made, even 
though it is believed that under the suggested 
principles the outcome of distribution would be 
nearer the desired outcome than it is at present; 
and that there would be a clearer perception of 
the public interest in the outcome of distribution 
than at present. 

4. — If a measure could be devised which would 
help to bring about the desired distributive out- 
come, without greatly weakening in some other 
direction the policy as already conceived, such a 
measure would be a most worth-while addition to 
the policy. It is possible to discern clearly what 
the scope and form of such a measure must be. 

Firstly : Such a measure should not single out 
the profits of particular enterprises for division 
or transfer to the wage earners, if the profits of 
these particular enterprises are in excess of what 
is conceived to be a just profit level for industry 
as a whole. For, in the first place, if the principle 
of standardization is enforced throughout indus- 
try, the excess profits of particular enterprises may 
frequently be the result of superior business abil- 
ity, and to take them away would be to discourage 
the development and use of that ability. And, in 
the second place, even if it is acknowledged that 
this is not the true explanation of the ojeat profits 
of very many enterprises, but that these are ac- 



THE REGULATION OF WAGE LEVELS 247 

counted for rather by the possession of special 
privileges or the weakness of competition, never- 
theless, to adopt a policy under which these profits 
are transferred to the wage earners would lead to 
wastefulness and extravagance in business opera- 
tion. And lastly, there is the fact that to make 
wages in any enterprise contingent upon the profit 
returns of that enterprise is contrary to the ordi- 
nary trade union policy. 

Nothing in this conclusion is meant to imply 
that the wage earners should not be free to enter 
into wage agreements calling for more than the 
standard wage. Or that profit sharing arrange- 
ments should not be permitted — on the contrary, 
such arrangements should be encouraged, pro- 
vided the standard wage and the right of the wage 
earners' organization to be fully represented in 
such arrangements are not brought into question. 

The conclusion just reached is meant to apply 
also in the opposite case — that is, in the case of 
the profits of particular enterprises falling below 
the level defined as just and sound industry as a 
whole. The wages of the workers engaged in these 
enterprises should not, for that reason, be reduced. 
This conclusion, it is believed, is amply explained 
by what has been written in various other con- 
nections. 

Secondly: Even if almost all or all of the en- 
terprises engaged in a particular industry should 
be in receipt of profits considerably in excess of 
what is conceived to be a fair profit return for 



248 THE SETTLEMENT OF WAGE DISPUTES 

industry as a whole, no attempt should be made to 
transfer the extra profits to the wage earners en- 
gaged in it by increasing their wages. Or to state 
the matter so as to include both this case and its 
opposite, the wages in any particular industry 
should not be adjusted by reference to the profits 
in that industry. It is clear that here we are upon 
difficult and very hotly disputed ground. 

At present, wages in different industries or oc- 
cupations are not settled in accordance with any 
principle which includes them all and which is 
the basis of an ordered scheme of wage relation- 
ship. The existence of a very high profits return 
throughout a particular industry is an almost 
prima facie justification for a wage demand 
on the part of the wage earners employed in it. 
So too in the opposite case. And as long as wages 
are settled, as at present, it must be so; for the 
wage earners in each industry or occupation are 
dependent upon their own activity to make good 
their claims as against the other participants in 
distribution. 

It is this very state of affairs, however, that it is 
sought to supersede. In an earlier chapter it was 
argued that in order to maintain industrial peace, 
wages in different industries and occupations will 
have to be brought into relation with each other, 
which relation should rest upon defined principle. 
It is plain that, if any other principle were also to 
be adopted, under which wages in particular in- 



THE REGULATION OF WAGE LEVELS 249 

dustries were adjusted by reference to the profits 
return in these industries, that scheme of rela- 
tionship would be constantly disturbed. If wages 
in particular industries were adjusted with ref- 
erence to the profits return in those industries, the 
result would be a series of uncoordinated wage 
movements in different parts of the industrial 
field, and the re-creation of a state of affairs not 
much different from the present. 

Then, too, if wages were to be adjusted with 
reference to the profits return in particular indus- 
tries, the method that has been advocated of 
settling upon a criterion of just profits would not 
be suitable. A separate mark of fair profits would 
have to be set up for each industry; for different 
industries involve different degrees of risk and 
have different initial periods of little or no pro- 
fits. What might correctly be considered an ex- 
cessive profit for one industry might be but a 
fair profit for another. The task of setting up 
different criteria for the different industries would 
be extremely delicate, if it were possible at all. 

The same conclusion holds true in the opposite 
case — wherein the profits in most all or all of the 
enterprises engaged in a particular industry are 
considerably below what is conceived as a fair 
profits return for industry as a whole. Cases will 
arise in which it may be to the interest of the 
wage earners in particular industries to accept 
wage reductions, because the industry is doing 
poorly. In such cases, however, the wage earners 



250 THE SETTLEMENT OF WAGE DISPUTES 

may be expected to agree — perhaps, only after a 
while — to wage reduction, in the course of wage 
bargaining. If, however, the wage earners will not 
agree that their interests are served by reduction, 
it will probably be sound policy to back them up. 

It must be admitted that this conclusion as to 
the inadvisability of adjusting wages by reference 
to the profits return of particular industries is not 
set down without hesitation. It is plain that if 
that idea is to be rejected, the policy of wage 
settlement as a whole must give some other guar- 
antee of distributive justice to the wage earners. 
And, indeed, if after a certain period of operation 
and education it was found that very large profits 
were accruing steadily in certain industries, and 
if it did not seem likely that these profits would 
be reduced to what is conceived to be a fair level 
either by the forces of competition or public opin- 
ion, it might be found wiser to pursue the opposite 
course — that is, grant wage increases in those in- 
dustries even at the risk of breaking down the 
scheme of wage relationship. Much will depend 
upon the way in which the employers respond to 
the purposes embodied in the policy of w r age set- 
tlement. And upon the success of the wage earn- 
ers and employers in reaching, by collective bar- 
gaining, agreements satisfactory to both. 

Justice W. Jethro Brown of the Industrial Court 
of South Australia has stated the problem with 
great clearness. He writes, "With respect to such 
an issue, one is on the horns of a dilemma. (1) If 
unusually high profits are being made in an in- 



THE REGULATION OF WAGE LEVELS 251 

dustry, ought not the employees to have a right 
to share therein? (2) If one does award high rates 
of wages, is not one inviting discontent amongst 
other classes of workers in allied industries or in- 
dustries generally? Employees are so apt to 
judge themselves well or ill treated by a compari- 
son of nominal wages without any reference to 
conditions of industry. In various judgments I 
have held that it would be quite permissible, if 
not appropriate, for the Court to take into con- 
sideration the fact that an industry is prosperous. 
On the other hand, as a matter of practice I have 
tried to work towards an ordered scheme of wages 
throughout the industry of the community as a 
whole." x 

If the above conclusions are accepted, it must 
be agreed that the scope of any measure designed 
to help in the attainment of the desired distribu- 
tive outcome must be the whole field of industrial 
enterprise to which the policy of wage settlement 
applies. The question that remains is, whether it 
is possible to devise a principle of wage settlement 
by which wages as a whole can be adjusted by 
reference to the profit situation in industry as a 
whole. That is to say, whether any measure can 
be elaborated by which all wages could be ad- 
justed, according as profits in industry as a whole 
exceeded, approximated, or fell below the profits 
level that is taken to mark just and sound dis- 
tribution of the product of industry. 

1 Letter dated March 16, 1920. 



252 THE SETTLEMENT OF WAGE DISPUTES 

5. — It is plain that if the measure is of such a 
character that no great harm can result from the 
possible error involved in the process of calcula- 
tion, it can be adopted with less hesitation than if 
the opposite were the case. That is one of the 
considerations prompting the following proposals. 

Let us presume, in order that the proposals may 
be put in definite form, that the profits return for 
industry as a whole which is agreed upon as just 
is a 12 per cent, return. The next step would be 
the invention of some method by which the profits 
return of industry as a whole at any given time 
can be measured. This would be a matter of 
considerable difficulty; yet it is, in my opinion, 
not beyond the range of practical attainment. 1 
The following method, for example, might not be 
too unsatisfactory. Let a certain number of enter- 
prises be selected in each industry which comes 
within the field of wage regulation. The selec- 
tions should be representative of the industry. If 
there is a variety of types of enterprises within 
the industry viewed from the standpoint of pro- 
ductive efficiency, the selected enterprises should 
tend to represent the more efficient sections of 
the industry. Then a valuation of these enter- 
prises should be made. A standardized method 
should then be devised for keeping account of the 
profits of these selected enterprises. That might 
necessitate the inauguration of standard methods 

'See pages 256-60, this chapter, for a further consideration 
of this question. 



THE REGULATION OF WAGE LEVELS 253 

of accounting throughout all industry — which is 
a result to be favored. The profits return from 
the selected enterprises in all industries should be 
combined into an index number of profits. Pos- 
sibly, in making up the index number, the figures 
for each industry should be weighted according 
to the number of wage earners employed in the 
industry. The resulting weighted average would 
be a reliable record of the profits return through- 
out industry at the particular time. The statis- 
tical method just described, however, is meant 
rather in the nature of a suggestion than as a 
declaration that it is the best method. 

Suppose the index number of profits so calcu- 
lated for a given period of time proves to be, for 
example, 18 per cent. — 6 per cent, higher than the 
approved level of profits. On the basis of this 
profit showing, the wages of all classes of wage 
earners could be increased for the subsequent 
period, with some hope of effecting a transfer to 
the wage earners of at least part of the product 
of industry represented by the 6 per cent, extra 
profit. That is to say, that whenever the index 
of profits showed a profits return in excess of this 
conceived just return, wages throughout industry 
should be increased to such an extent as is calcu- 
lated to bring the profits return down to the ap- 
proved level. 

Whenever the index of profits showed a profits 
return approximately equal to or less than the 
approved level, no wage change should be under- 



254 THE SETTLEMENT OF WAGE DISPUTES 

taken. For if the profits return was approximately 
equal to the approved level, it can be concluded 
that the distributive result is approximately that 
which is desired. And if the profits return is 
under the approved level, it would probably be 
both impracticable and inadvisable to reduce 
wages throughout the industry. For since no 
direct control is exercised over profits, the falling 
of the profits return to a point below the ap- 
pointed mark of just and sound distribution, 
would be but the outcome of industrial com- 
petition. While it is conceivable, in particular 
cases, that the community would be better off if 
the profits return was greater than the return 
thereby produced, the contrary presumption is 
more likely to be correct under present conditions. 
For it is both desirable and likely that the figure 
that would be set as the mark of just and sound 
distribution will err on the side of being higher 
than the profits return required to assure adequate 
accumulation and investment. 

6. — So much for the basis of the proposed meas- 
ure. It is desirable to examine briefly its chief ad- 
vantages and disadvantages. But first note must 
be taken of another problem that would arise in 
the attempt to enforce it. If the wages of all classes 
or groups of wage earners are to be increased when 
the profits return in industry as a whole is above 
the approve i level, the question arises as to the 
best way to calculate the wage increases, and the 



THE REGULATION OF WAGE LEVELS 255 

most satisfactory basis for distributing them 
among the different groups of wage earners. If 
both of these calculations can be kept simple, it 
will be a distinct advantage. Possibly the most 
simple and satisfactory way is to determine the 
absolute amount of the extra profits, and of the 
total wages bill for the representative enterprises 
— putting one in terms of a percentage of the 
other. For example, if it be calculated that the 
profits of these enterprises in excess of the ap- 
proved level be one hundred million dollars, and 
the total wages bill of the same enterprises two 
billion dollars, the amount of wage increase to be 
awarded should be stated as 5 per cent. That is, 
the wage increase to be awarded should total 5 per 
cent, of the total wages bill. 

And here the second problem arises. How 
should this wage increase be distributed among 
the various groups or classes of labor? It is prob- 
able that the most satisfactory method would be 
to raise the wages of all groups or classes of labor, 
including those groups whose wages were deter- 
mined under the living wage policy, by the same 
absolute amount. This method does not meet all 
the demands of our previous reasoning regarding 
wage differentials. It would, however, be the only 
way to avoid too much complication in the deter- 
mination of wages for different groups or classes 
of labor. 

7. — What would be the chief difficulties and dis- 



256 THE SETTLEMENT OF WAGE DISPUTES 

advantages attendant upon the application of the 
measure just sketched out? And what are the 
chief advantages which it gives promise of? These 
are the questions which now present themselves. 
First of all, certain difficulties of a practical nature 
must be faced. For example, there would be diffi- 
culty of settling upon a satisfactory method of 
calculating the profits return of industry. The 
most satisfactory method of calculation would 
probably be in the form of a percentage 
earned upon capital. If that basis of calcula- 
tion is chosen, however, some method must 
be decided upon for the measurement of the capi- 
tal value of all those enterprises, the profits return 
of which is combined to form the index number 
of profits. Probably the best way of meeting the 
difficulties would be to have such a capital valua- 
tion of these enterprises as has just been com- 
pleted for the United States railways. And there- 
after standard methods of recording new capital 
investment should be enforced. 

Such an evaluation would appear to be an un- 
welcome but inevitable preliminary to any at- 
tempt to measure and record business earnings. 
Experience has shown the vast labor and large 
margin of error involved in formal evaluations. 
Under the proposals made in this chapter, how- 
ever, errors made in the evaluation of particular 
enterprises would be of no groat consequence to 
these enterprises. Only the combined or general 
profits figure would be used in the course of wage 
adjustment. 



THE REGULATION OF WAGE LEVELS 257 

Second among the difficulties of a practical 
nature is that which comes from the necessity of 
defining clearly what is to be considered profits. 1 
Clearly the earnings put back into the deprecia- 
tion account should not be counted as profits. 
Loss or gain from the change in the value of the 
stock held should not be taken into account. Nor 
should taxes paid before the distribution of divi- 
dends be so counted. Bonus stock dividends, rep- 
resenting reinvestment out of current earnings 
should be counted as profits, as well as being re- 
corded as additions to invested capital. Capital 
borrowed from banks should not be considered as 
capital — and the interest paid on such borrowings 
should be considered as a business expense. The 
question of the treatment to be accorded salaries 
of direction could be settled by reference to arbi- 
trary rules drawn up upon the subject — some 

1 W. J. Ashley, in an article in the Economic Journal, De- 
cember, 1910, entitled "The Statistical Measurement of 
Profit," reveals the many serious problems involved in the 
measurement of profit — when no prior preparation (such as 
the compulsory standardization of methods of accountancy) 
has been undertaken. The question of profit measurement he 
aptly states as that of finding out "what the suppliers of 
capital to business concerns get in the long run over and 
above the capital they actually put in them" (page 549) . Un- 
less prior preparation is undertaken for the purpose in hand, 
it is probable that his conclusion does not overstate the dif- 
ficulties much, if at all. He writes, "Modern 'trust finance* 
— the finance of great new industrial combinations, creates 
difficulties in the way of gain statistics that will tax the 
highest skill of the economist and accountant — if, indeed, they 
are not insuperable" (page 549). There would appear to be 
no good reason, however, why prior preparation, such as is 
suggested, could not be undertaken; nor would that task be 
one of extreme difficulty. 



258 THE SETTLEMENT OF WAGE DISPUTES 

allowance being made in the case of partnerships 
or of businesses operating under private direction 
to compensate for the salaries of direction that 
are paid in large incorporated enterprises. 

Thirdly, provision would have to be made for 
the reconsideration, at stated intervals, of the 
profits return that is set as the mark of just and 
sound distribution. Thus heed could be taken of 
any significant changes in the price level, in the 
conditions of supply and demand for capital, or 
in any of the other relevant considerations. Like- 
wise, provision would have to be made for the 
periodical revision of the list of enterprises and 
industries used in the computation of the profits 
return for industry as a whole. These matters, 
though vital, must be left without detailed con- 
sideration. 

Nevertheless, it is idle to overlook the amount 
of labor that would be involved in any attempt 
to keep a record of the profits return in industry. 
It would be dreary, and of a type demanding spe- 
cialized knowledge and disinterestedness. Fur- 
thermore, any such plan would probably have to 
be put through in the face of the resentment of 
most business men. That resentment, however, is 
likely to flash out against any proposals that look 
forward to securing industrial peace by giving the 
wage earners a more assured position in industry, 
and ready access to the facts of business operation. 
The standpat temper of those business men who 
argue that their business is entirely their own pri- 



THE REGULATION OF WAGE LEVELS 259 

vate concern would make impossible any policy 
of wage settlement that did not throw the balance 
of industrial power in their hands. Unless they 
visualize their position in different terms than 
these, little hope can be entertained that any pro- 
posals calling for a record of profits will be sup- 
ported by them. But then it is the normal role 
of the peace-maker to seek concessions that con- 
testants are not ready to make; to plead general 
necessity where contestants see only their own; 
to represent each side to the other in its best light. 

8. — Besides these difficulties of a precise and 
practical kind, certain weaknesses of a more the- 
oretical nature may be urged against the measure. 
First, it may be argued that since the policy exerts 
no direct control over profits, there is little reason 
to believe that profits will be kept down to an 
approved level. This criticism would or would 
not be justified by the event, according as indus- 
trial competition were effective; according as 
employers acted up to the purposes and spirit of 
the policy of wage settlement, and gave the gen- 
eral interest a place alongside of their particular 
interests; according as government regulation of 
industry was competently carried out; and lastly, 
according to the measure in which public opinion 
made itself felt on the subject. Any such plan 
as the proposed, by clarifying ideas on the subject, 
would do much in the way of making public 
opinion more decisive than at present. It would 



260 THE SETTLEMENT OF WAGE DISPUTES 

serve to inform the community that wages can 
be increased without equivalent price increase, 
whenever the possibility exists. It would provide 
employers with a code of honor in industrial rela- 
tions. And lastly, it must be remembered that the 
alternative to some such policy of wage increase 
is a system of direct profits control (leaving out 
of consideration the possibility of more general 
and fundamental change). 

It is conceivable that a policy of direct profits 
control for all industry can be worked out, which 
would not penalize and discourage productive 
capacity. But it would be an extraordinarily hard 
job and would necessitate a detailed study of the 
facts of each particular industry. No doubt a 
policy of direct profits control is to be strongly 
advised in particular cases. As, for example, on 
the American railways at present, where the rate- 
making power is in the hands of a public body; 
or in the case of the English coal mines, where 
the question of control is comparatively simple, 
and the occasion for control plain. But as a policy 
for all industries it would involve, in my opinion, 
an entirely impracticable amount of regulation, 
and it would be likely to lessen the effectiveness 
of production and to lead to the wasteful conduct 
of industry. Therefore, it must be concluded that 
some such attempt to control profits indirectly as 
has been proposed — depending upon the forces of 
competition, trade union activity, public opinion 
and government regulation — is to be preferred. 






THE REGULATION OF WAGE LEVELS 261 

There is another possible criticism of a theo- 
retical sort. It may be pointed out that it is' 
proposed to increase wages on the basis of data 
derived from the whole field of industry. And 
it may be argued, therefore, that the increases 
undertaken by the reason of the showing of that 
data may be considerably greater than particular 
industries could stand, without an increase in 
the price of their products. On the other hand, 
they may be considerably less than the increase 
required in other industries to reduce the profits 
return to approximately the approved level. 

As to the first possibility, it is entirely conceiv- 
able. A wage movement based upon the profits 
return from all industries and applied equally to 
all groups of w r age earners might cause price in- 
creases in particular industries and possibly tem- 
porary dislocation and even some unemployment. 
Such price changes and dislocations, however, are 
constantly occurring in industry in the absence of 
any policy of wage settlement, due to the effect 
of wage increases in one industry on wage move- 
ments in other industries. There is little reason 
to believe that the measure advocated will add 
considerably to the frequency of their occurrence. 
It might in one respect serve to lessen the extent 
of such disturbances. It might make less fre- 
quent the recurrence of wage demands, originating 
in particular industries because of high profits in 
these industries, and spreading over a large part 
of the field of industry. For, as has been empha- 



262 THE SETTLEMENT OF WAGE DISPUTES 

sized, organized groups of wage earners will not 
accept passively a change for the worse in their 
position in the economic scale. Finally, there is a 
safeguard in the fact that no wage increase need 
occur in any industry except upon the demand 
of the wage earners in that industry. Joint dis- 
cussion might make it clear that wage increases 
could not be well afforded in particular industries, 
and joint agreement reached upon that fact. The 
self-interest of the wage earners, here as else- 
where, would prove to be some sort of a check 
upon unwise wage increases. 

As to the second possibility — that wage in- 
creases undertaken on the showing of data derived 
from all industries may be considerably less than 
the increases required in particular industries to 
bring down the profits return in those industries 
to the approved level — that, too, is entirely con- 
ceivable. But against this disadvantage must be 
weighed those which would be attendant upon 
any measure by which wages in particular indus- 
tries are adjusted by reference to the profits return 
in those industries, — which subject has already 
been considered. The fact must be accepted. In 
any plan such as the one proposed, faith would 
have to be put in the power of indirect influences 
to keep the profits return in particular industries 
from greatly and consistently exceeding the ap- 
proved level. 

By way of conclusion, it may be made clear 
that any such plan as the proposed would call 



THE REGULATION OF WAGE LEVELS 263 

for the assent of the wage earners to the doctrine 
that, when the profits return in particular indus- 
tries is greatly in excess of the approved level 
for industry as a whole, the community in general 
have the leading claim to those profits. It is plain 
that union assent to that doctrine would be forth- 
coming only if the community made effective its 
claims. The attainment of a just distributive out- 
come — one based upon considerations of the gen- 
eral interest — will be essential to the success of 
any policy of wage settlement for industrial peace. 



CHAPTER XIII— A CONCEPT OF INDUS- 
TRIAL PEACE 

Section 1. The hope for industrial peace in the United 
States. — Section 2. A policy of wage settlement composed 
out of the principles already set forth. — Section 3. What 
results might be expected from the adoption of these 
principles as a policy? — Section 4. The matter of eco- 
nomic security for the wage earners likely to be impor- 
tant for industrial peace. Hardly considered in this book. 
The question has been presented to the Kansas Court of 
Industrial Relations. — Section 5. Certain new ideas con- 
cerning industrial relationship have come to stay. They 
indicate the probable current of future change. 

1. — The hope that a policy of wage settlement 
for industrial peace may be adopted by consent, 
rests upon the supposition that there exists in the 
United States to-day a considerable measure of 
agreement upon a practicable ideal of industrial 
society. To put the matter more expressly, if 
half of the community sincerely believed in a 
policy of the greatest possible freedom of indi- 
vidual enterprise, and the other half were ardent 
believers in the desirability of a socialist state, the 
hope of the adoption of a policy of wage settle- 
ment would be fatuous. 

It may seem to many that this necessary meas- 
ure of agreement upon a practicable ideal of 
industrial society does not exist in the United 
States to-day. And, therefore, that the process 

264 



A CONCEPT OF INDUSTRIAL PEACE 265 

of debate and conflict in industrial affairs — as we 
know it to-day — must continue for a much longer 
time before the country will be ready to agree 
upon any policy of wage settlement for industrial 
peace. In short, that more heads must be broken 
in order that reasonableness and light may enter 
into them. 

Still, various reflections should encourage us 
to go ahead in the search for some policy of wage 
adjustment for which the necessary general con- 
sent can be won. First of all, there is the fact 
that there is urgent need for industrial peace ; that 
great suffering, and the constant disruption of 
industry, will be an accompaniment of a continua- 
tion of industrial conflict. And it is essential to 
the settlement of most economic issues, as well as 
political, that the members of a society do take 
heed of the needs of the society. It is the origin 
and justification of the habit of political com- 
promise. 

Secondly, it is not easy after all to be cocksure 
as to what men will or will not agree to until they 
are directly faced with the task of decision. It is 
not easy to tell at what point in the conflict of 
"opposite convictions" an end may be made of 
the conflict. 1 It is usual that doubt be present in 

1 "As law embodies beliefs that have triumphed in the bat- 
tle of ideas, and have then translated themselves into action, 
while there is still doubt, while opposite convictions still 
keep a battle front against each other, the time for law has 
not yet come; the notion destined to prevail is not yet en- 
titled to the field," "Law and the Court," address by Justice 
Oliver Wendell Holmes, Jr., before the Harvard Law School 
Association. 



266 THE SETTLEMENT OF WAGE DISPUTES 

many men's minds when a grave decision is 
made by society. The constitution of the United 
States was adopted in the midst of a struggle of 
ideas, so violent that all agreement seemed to be 
precluded. The chances of agreement can rarely 
be certainly known until all possible grounds of 
agreement are explored. 

Thirdly, the belief that the continued battle of 
ideas will ultimately lead to agreement, and 
eventuate into policy is an optimistic belief which 
is not always supported by the facts. Sometimes, 
indeed, it does, as in the case of woman suffrage. 
Sometimes, however, it ends in the resort to force. 
And frequently not even the resort to force pro- 
duces a solution of the difficulty. The conflict 
goes on even after the use of open force is sur- 
rendered. 

Lastly, it is possible, and indeed necessary 
so to frame policy, that even while it maintains 
peace and produces cooperation between conflict- 
ing interests and ideas, it does not stereotype for- 
ever the terms of peace and cooperation. Agree- 
ment is often obtained for an economic or political 
policy in the knowledge that it can be changed if 
different ideas come to prevail. A policy of wage 
adjustment, like any other measure, would have 
to be always subject to reconsideration and 
amendment. Indeed, it might carry provision in 
itself for such reconsideration ; it might be adopted 
as an experiment for a definite period of years. 



A CONCEPT OF INDUSTRIAL PEACE 267 

2. — In the preceding chapters the main prob- 
lems that must arise in the course of any attempt 
to settle wages by official authority have been dis- 
cussed. These problems were considered with 
reference to the possible formulation of a satis- 
factory policy of wage settlement for industrial 
peace. That policy may now be presented as a 
whole. Only in that way, indeed, can the signifi- 
cance of any particular principle of settlement be 
understood. 

It is presumed that whatever policy is put into 
force will be administered by a government 
agency, with and by the consent and support of 
both the wage earners and the employers. It is 
also presumed that the method of collective bar- 
gaining is accepted throughout industry. Indeed, 
the existence of organized joint boards or councils 
of wage earners and employers would be almost 
essential to the success of any policy. 

The central constituted agency for the adminis- 
tration of the policy should be a commission or 
court. The policy should then provide that when- 
ever a dispute arises incidental to the settlement 
of wages in any industry included within the scope 
of the policy, which dispute is not settled by the 
ordinary course of collective bargaining, it should 
be referred to this commission or court. All sides 
should be permitted to submit evidence bearing 
upon the case. The court or commission should 
have its own expert staff, and its own record and 



268 THE SETTLEMENT OF WAGE DISPUTES 

statistical office ; and it should be its duty to know 
the wage situation throughout industry. 1 Every 
possible effort should be made by the commission 
or court to render judgment without litigation. 
The commission or court should give in full the 
principles and the data upon which it bases its 
decisions. 

The wage policy of the commission or court 
should rest upon the following principles: 

First — The principle of standardization should 
be applied throughout industry. Wages should 
be standardized by occupations, despite minor dif- 
ferences in the character of the work performed 
by the same occupational group, or in the condi- 
tions under which the work is performed. Stand- 
ard rates should be understood to be merely 
minimum rates; and the principle of standardiza- 
tion should be construed so as to permit of all 
methods of wage payment. 

When the introduction of standardization into 
a hitherto unstandardized industry or occupation 
is deemed to involve the possibility of doing more 
injury to certain sections of the wage earners and 
employers affected than it promises definite good, 
the application of the principle should be limited 
or varied so as to avoid producing such injury. 
Differences in the natural advantages possessed 
by various enterprises in the same industry, and 

1 In this matter the Kansas Industrial Court law sets a 
pood example by authorizing the Court to build up a staff 
of accountants, engineers and such other experts as it may 
need for the proper conduct of its operations. 



A CONCEPT OF INDUSTRIAL PEACE 269 

relatively great and permanent differences in the 
cost of living in different localities — these are 
likely to be the chief grounds for limitation or 
variation in the application of the principle. The 
exceptions or variations admitted on these 
grounds would vary greatly in character and ex- 
tent no doubt. It is to be expected that they 
would be numerous. Under certain conditions it 
might also prove advisable to grant "nominal 
variations" of the standard wage. Such "nominal 
variations" would ordinarily be established to 
compensate for differences of conditions of work 
governing output in piece-working trades, when 
such differences of conditions must be accepted as 
permanent, as in coal mining; or to cover pay- 
ment in kind or to make up for irregularity of 
employment. 

The process of wage standardization should be 
regarded as an independent process, as a process 
logically prior to the other principles of wage set- 
tlement (though they may all be applied at the 
same time). That is to say, the determination 
of the level of standardization should be fixed 
upon independently of all other principles of wage 
settlement. The principal data to be taken into 
consideration when fixing the level of standardiza- 
tion should be the actual variety of wage rates in 
the industry or occupation in question. Wherein 
the scale of actually existing wage rates, the level 
of standardization is set will be a matter of judg- 
ment and compromise. Usually the correct level 



270 THE SETTLEMENT OF WAGE DISPUTES 

will be at the higher range of the wage rates al- 
ready being paid. If any of the existing wage 
rates in an industry or occupation are higher than 
the level of standardization which is fixed, the 
higher rates should ordinarily not be lowered to 
the level of standardization. 

Secondly — The wages of those groups of wage 
earners who are at the bottom of the industrial 
scale should be regulated upon the living wage 
principle. That is to say, the policy of wage set- 
tlement for these groups should represent a con- 
sistent effort to secure to them a wage at least 
sufficient to permit them to satisfy their "normal 
and reasonable needs." These needs must be in- 
terpreted in the light of and by direct comparison 
with the standard of life of the wage earners in 
general, and of the middle classes in the commu- 
nity. In the determination of the living wage, 
the existing level of wages for the groups in ques- 
tion will also be an important consideration. The 
declared living wage — that wage which it is sought 
to secure for all industrial workers — should be 
assessed upon a different basis for male and female 
workers; but if, in particular cases, it is deemed 
best to safeguard the interests of male workers, 
or to keep women out of particular industries, this 
rule could be departed from in any one of a num- 
ber of suggested ways. The most important of 
these possible departures from the ordinary basis 
of assessment is the enforcement of the same wage 
rates for men and women when they are employed 



A CONCEPT OF INDUSTRIAL PEACE 271 

upon the same work. The living wage in any 
industry should be a standard wage, subject to all 
the qualifications and limitations of other stand- 
ard wage rates. 

The success of the living wage policy will 
depend in a great degree upon the good judgment 
with which it is adapted to the conditions obtain- 
ing in each individual industry or occupation in 
which it is enforced. Therefore, the court or com- 
mission should proceed upon the advice of the 
joint boards or councils concerned. It should be 
the function of each joint council to give definite 
advice to the central authority upon every feature 
of the policy to be pursued in its field — particu- 
larly upon the subject of the wages to be pre- 
scribed. The central authority should give no 
ruling in any industry until after the report of 
the joint council of that industry. Each joint 
council should have the further duty of observing 
and reporting upon the effect of the living wage 
policy in its industry or occupation. 

The living wage policy should be administered 
in such a way as to spread among the wage earners, 
the employers, and the public an understanding 
of the hope and purpose it embodies and a clear 
knowledge of the factors which will govern its 
success. Not the least of which factors will be 
the determination of all grades of wage earners 
to make good use of whatever new measure of 
participation in industry they may secure; and 
the recognition by the employers that the standard 



272 THE SETTLEMENT OF WAGE DISPUTES 

of life of their workers is one of their important 
concerns. 

Thirdly — The wages of all groups of wage 
earners not included in the scope of the living 
wage policy should be settled by reference to 
principles which apply equally to them all. The 
wage decisions, at the inauguration of the policy, 
must rest upon the acceptance and protection of 
existing wage levels, and of existing wage relation- 
ships. However, as cases arise, which bring up 
the question of the relative positions on the wage 
scale of the workers engaged in different industries 
and occupations (and such cases will arise con- 
stantly), they should be settled as part of a gen- 
eral process of building up in industry an ordered 
scheme of wage relationship. This scheme should 
rest upon defined principles. 

These principles should be two in number. 
They were set forth, both as theoretical and ap- 
plied doctrines under the titles of the "principle 
of the unity of the wage income and of the wage 
earners/' and the "principle of extra reward/' 
Wage awards for different industries and occupa- 
tions should be constantly related to each other. 
The underlying emphasis in the whole series of 
awards for different industries and occupations 
should be that the wages of each group are what 
they are, more because the total wage income is 
what it is than because of the special type of 
work performed by any group. The same wage 
should be paid throughout industry for dif- 



A CONCEPT OF INDUSTRIAL PEACE 273 

ferent kinds of work which require approxi- 
mately the same human qualities and which 
make approximately the same demands upon the 
individual. The wage differentials that are estab- 
lished should be such as will make it reasonably 
certain that industry will be provided with at least 
the existing proportion of the more skilled grades 
of labor, and to make it reasonably certain also 
that the more arduous, dangerous, irregular, and 
disagreeable work will command the service of as 
much labor as at present. The hopes for the 
establishment of any scheme of wage relationship 
will be realized or not, according as particular 
groups of wage earners are willing to accept a wage 
that may be less than that which they might se- 
cure by the continued use of their own group 
strength. This last remark applies in particular 
to those groups of wage earners, whose economic 
position, as organized groups, is very strong by 
virtue of the fact that the work they perform is 
essential to the economic existence of the whole 
community — such, for example, as the railway 
men, the bank clerks, the printers, and the miners. 
Fourthly — With a view to preventing those 
changes in the distributive situation which may 
result from price movements, and which are un- 
desirable — judged by reference to the distributive 
outcome that is sought — all wages including those 
prescribed under the living wage policy should be 
promptly adjusted to movements in the general 
price level. The measure of price change should 



274 THE SETTLEMENT OF WAGE DISPUTES 

be the movement of the index number of prices 
of all the important commodities produced within 
the country — the index number to be so weighted 
as to give a defined importance (50 per cent, was 
suggested) to the prices of those classes of food- 
stuffs, clothing, housing accommodation, and 
other commodities upon which the wage earners 
spend a very great part of their income. The 
policy of adjustment to be pursued in times of 
rising and falling prices and the amount of wage 
adjustment to be undertaken in response to price 
movements of different degrees and character — 
in short, all the rules by which the adjustment of 
wages to price movements should be carried out 
— were considered, at some length, in several of 
the earlier chapters, and can hardly be produced 
satisfactorily in summary form. Special care 
should be taken to protect the standard of life of 
the least favorably placed groups of wage earners 
during periods of a rising price level. 

Fifthly — In order to bring about such a dis- 
tributive outcome as will recommend the policy 
of wage settlement to the wage earners and to the 
community in general, some profits test should be 
devised. This profits test should be used to mark 
and measure the distributive situation in industry 
as a whole, indicating, as it will, the share in the 
product of industry that is taking the form of 
profits. Whenever the general range of profits in 
industry exceeds that profits return which is con- 
ceived to be just and sound, the wages of all groups 
of workers should be increased in an attempt to 



A CONCEPT OF INDUSTRIAL PEACE 275 

transfer the extra profits to the wage earners. The 
calculation of the wage increase to be awarded, 
when the profits test shows that the profits return 
in industry as a whole is greater than that con- 
ceived to be a fair return, and the basis of dis- 
tribution of this wage increase among the various 
groups of wage earners, were dealt with at some 
length and cannot be described more summarily. 
In order to apply any profits test, such as the sug- 
gested one, it would probably be necessary to 
enforce standardized accounting methods through- 
out industry. 

The most satisfactory policy would not attempt 
any direct control of profits. Nor would it make 
provision for the transfer of the extra profits that 
may be earned by particular enterprises or indus- 
tries to the wage earners of those particular enter- 
prises or industries. The forces of industrial com- 
petition, trade union activity, public opinion, and 
government regulation would have to be depended 
upon to keep the profits return of industry at 
approximately the level which may be set as the 
mark of just and sound distribution. A policy of 
direct control of profits may, however, be advis- 
able in particular industries or on special occa- 
sions. The continued assent of the wage earners 
to any policy of wage settlement will be largely 
governed by the success of the community in 
making good its claim to a large part of the extra 
profits which may accrue to particular enterprises 
or industries. 

Sixthly — Any policy of wage settlement of the 



276 THE SETTLEMENT OF WAGE DISPUTES 

type considered above should give encouragement 
to the organization of labor throughout industry. 
It would have to make use of joint councils or 
boards in many ways (there may be some craft 
joint councils also). The English and Australian 
experience seems to prove that. To quote Justice 
Higgins of the Commonwealth Court of Australia, 
"The system of arbitrations adopted by the act is 
leased on unionism. Indeed, without unions, it 
is hard to conceive how arbitration could be 
worked." * Still, once a dispute has come up be- 
fore the central authority, the final power to 
render decisions should rest intact in its hands. 

All organizations of wage earners or employers 
should be compelled (if necessary) to agree to a 
policy of open membership. Such a policy of open 
membership should suffice to prevent monopolis- 
tic action on the part of the union in any industry 
or trade. 2 It would also be well if shop rules could 
be brought within the field of public supervision, 
but that may prove impracticable. Finally, it 
may be said that no part of the policy should in- 
terfere with the development of profit-sharing 
plans — provided such plans are the product of 
joint agreement between the employers and the 
workers engaging in them ; and if the workers im- 

1 H. B. Higgins, "A New Province for Law and Order," 
Harvard Law Review, March, 1915, page 23. 

2 "Where the union admits all qualified workers to member- 
ship, under reasonable conditions, such a rule cannot become 
the basis of monopoly." U. S. Ind. Comm'n. Report (1915), 
Vol. I, page 116. Report signed by Commissioners Manly, 
Walsh, Lennon O'Connell and Garretson. 



A CONCEPT OF INDUSTRIAL PEACE 277 

mediately concerned so desire, the labor organi- 
zations should be given full representation in the 
arrangements. Nor, indeed, should it discourage 
any movement towards the participation of the 
workers in the control of industry, whatever the 
scope of such participation. On the contrary, by 
creating- mutual confidence between the wage 
earners and the directors of industry, and by giv- 
ing both the wage earners and the employers 
training in the art of mutual agreement, it should 
prepare the way for the growth of such participa- 
tion. 

These principles of wage settlement would, it 
is believed, form a sound and forward looking 
policy of wage settlement for industrial peace. 
Nevertheless, they are not put forward with the 
idea that they, or any similar set of principles for 
the settlement of wages, would be workable in 
practice without many hitches, and without the 
need for constant adaptation to the facts encoun- 
tered. Nor without a suspicion of the hard blows 
and unexpected eventualities which fate usually 
has in store for fine proposals. 

3. — Ultimately, of course, behind any proposals 
for industrial peace there is a striving to catch 
sight of a future industrial society more content, 
more generous and creative than that of the pres- 
ent time. To the ordinary observer no such ulti- 
mate question appears to be involved in an ordi- 
nary wages dispute. Yet it is there. The trade 



278 THE SETTLEMENT OF WAGE DISPUTES 

union leader fighting for a wage increase does not 
always see his demand as a plain group claim for 
greater reward; it frequently appears as an act of 
justice to his class, a step towards improving their 
position and power in industrial society. To the 
employer more often the struggle is merely to pro- 
tect his profits. But beyond that in many cases 
there is a fear lest industrial growth and extension 
be obstructed. Any policy of wage settlement that 
is more than a weakly supported truce must throw 
some rays of hope into the future. What type of 
future industrial society may be envisaged if any 
principles of wage settlement similar in substance 
to those discussed in this book should be adopted? 
What suggestions for the future are contained in 
them? It is not easy to see. Only a few features 
of the future can be discerned and those sketchily. 
Industry would still be carried on in the main 
by private enterprise and competitive activity. 
Particular industries, as for example, the railroads, 
may become government owned or government 
operated enterprises. But even so, wages in those 
industries would be, in all probability, determined 
by the same principle as wages in other industries, 
and by the same agency. The function of capital 
accumulation would still be a private function. 
The tasks of industrial direction would still be 
carried out by the will of those who owned in- 
dustry; although, in many industries the power 
and duty of deciding some of the important ques- 
tions of direction, especially those which affect 



A CONCEPT OF INDUSTRIAL PEACE 279 

the wage earners most directly, might be in the 
hands of a council or board on which the wage 
earners are strongly represented. 

It may be hoped that all wage earners, except 
those judged sub-ordinary, would be in receipt of 
a wage at least sufficient to enable them to main- 
tain themselves (and in the case of men, their 
family) at a standard of life which did not 
compare too unfavorably with the standard of life 
of the rest of the community. By virtue of this, 
the way would be opened for even the lowest 
grades of the wage earners to take advantage of 
the opportunities that are provided for physical 
and mental life and education. The ideal would be 
to ensure that the whole of the industrial popula- 
tion had that original grant of health, security, 
and hope which is required to give reality to the 
idea of equality of opportunity. 

It is vain, perhaps, to attempt to predict 
whether the level of production throughout in- 
dustry would rise or fall ; for that will be affected 
in a decisive measure by influences over which the 
policy of wage settlement will have little or no 
control. The proposals made would give adequate 
encouragement to the accumulation of capital, and 
to the carrying out of business ventures. It would 
succeed also, it may be hoped, in securing the 
active interest of the wage earners in a high level 
of production, by bringing about such a distribu- 
tive outcome as appears just to the wage earners, 
and by giving adequate expression to the aspira- 



280 THE SETTLEMENT OF WAGE DISPUTES 

tions of the wage earners. In an industrial 
system, largely dominated by the single motive 
of personal gain, it is not likely that any one group 
or class will respond to a general need for high 
production unless its interests are thereby directly 
served. If the policy adopted brought about a 
broadening of the motives on which the system 
rests and operates, there is much ground for the 
belief that the level of production would be favor- 
ably affected. However, as was said above, the 
possibility of such a result will be largely governed 
by influences outside of the present field of study. 
There remain the questions of the distribution 
of wealth and of opportunity. Here, also, any 
conclusions that are ventured must rest upon an 
insufficient knowledge of the events which will 
govern the future. One of the chief requirements 
that proposals made were designed to satisfy is the 
attainment of such a distributive outcome as may 
be judged to be both just and sound — weighing 
all relevant considerations. Yet it would probably 
be over-optimistic to believe that the result would 
satisfy the intention. For all that, the general de- 
sire for a high level of production will largely 
depend upon the fulfillment of that intention. 
The wage earners will only continue to subscribe 
to a doctrine of high production if they trust to 
the action of the distributive mechanism to bring 
them a fair share of the resulting product. Here 
we are at the very storm center of socialist eco- 
nomics. The question is, to what extent, as a 



A CONCEPT OF INDUSTRIAL PEACE 281 

matter of fact, do the wage earners share in the 
result of increased productive efficiency? To that 
question, the policy of wage settlement must fur- 
nish a satisfactory answer — though, of course, no 
answer will be satisfactory to all men. 

The question of the prospective distribution of 
wealth, however, can hardly be considered apart 
from the question of the future course of growth 
in population. Even if the wage earners do re- 
ceive that share of the product of industry which 
represents a just and sound distributive outcome, 
will that mean a gradual evolution of higher 
permanent standards of living among the poor, 
and give them a fair start in the struggle for op- 
portunity? Or will it mean but a greater rate of 
increase in population, such as will more than 
keep pace with the ability of our natural resources 
and the advances in production and invention to 
provide the basis of a rising standard of life for 
all the population? In the latter case, groups 
will remain at the bottom of the industrial scale 
whose economic position will be so unfavorable 
under any social arrangements as to prevent the 
individual members of these groups to fairly de- 
velop and test their natural ability. In which 
case the handicap of inequality would be very 
real. The nineteenth century has left us with a 
hopeful outlook in regard to the possibility of 
maintaining a progressive standard of living 
throughout the community; but the events, pur- 
poses, and habits which will determine the out- 



282 THE SETTLEMENT OF WAGE DISPUTES 

come are too many, and their relative influence is 
too indeterminate to warrant any certain predic- 
tions. 

However, even if the menace of population is 
avoided, even if the general level of production 
is raised, and if, besides, the distributive outcome 
laid down as a goal for the policy of wage settle- 
ment is attained, nevertheless, there would re- 
main a considerable measure of inequality of 
wealth. For, it is to be anticipated, that in the 
course of the development of our industrial or- 
ganization, the amount of invested capital rela- 
tive to the number of wage earners will grow. 
This means that the absolute amount of the 
product of industry which takes the form of profits 
will increase, even if the relative share does not. 
As Professor Taussig has written, "In general, the 
very forces which make the total income of society 
high and the general rate of wages high cause the 
proportion of income which forms return on capi- 
tal to be large." 1 And any continued increase in 
the absolute amount of the product of industry 
taking the form of profits will be likely to lead to 
a considerable measure of inequality of wealth; 
unless the amount of accumulation and invest- 
ment on the part of the wage earners is largely 
increased. 

So much for the question of the distribution of 
wealth. Is it possible to venture any definite con- 

1 F. W. Taussig, "Principles of Economics," Vol. II, page 
205. Revised Ed. 



A CONCEPT OF INDUSTRIAL PEACE 283 

elusions, at all, regarding the distribution of 
opportunity? The idea of equality of opportunity 
is not an easy one to define in terms of facts. It 
can be said that it would be realized, in the eco- 
nomic sphere, if such economic conditions prevail, 
as gave all individuals an approximately equal 
chance to follow their inclinations, and to make 
whatever use of their natural abilities they desire. 
If that definition is near the heart of the matter, 
it is evident that in a society in which there is con- 
siderable inequality of wealth it will not be possi- 
ble to secure equality of opportunity. As Mr. 
Tawney has remarked, "Talent and energy can 
create opportunity. But property need only wait 
for it." Under almost all circumstances there is a 
tendency for the distribution of opportunity to 
conform to the distribution of wealth. Still it is 
not to be concluded that this tendency is uncon- 
ditional. If it proves possible to secure to every 
industrial family (except perhaps the most in- 
capable) such a minimum standard of economic 
life, and such a degree of economic security as will 
bring it about that these families are not gravely 
handicapped in their efforts to utilize the existing 
opportunities for education and for economic ad- 
vancement, an important step towards equality of 
opportunity will have been accomplished. It is 
true that a small section of the population will be 
strongly favored from the start. But, in an en- 
vironment which encourages individual effort, the 
most important step in the process of secur- 
ing equality of opportunity is to get rid of the 



284 THE SETTLEMENT OF WAGE DISPUTES 

serious obstacles to the development and active 
use of the natural ability of those born low in the 
industrial order. 

4. — One important factor in industrial peace, 
which might well be given consideration in the 
formulation of a policy of wage settlement for in- 
dustrial peace, has received but scant mention in 
this effort to formulate the terms of policy. It is 
the question of economic security for the wage 
earners. It is argued by some students of our in- 
dustrial troubles that the fundamental desire of 
most workers is not for advancement, or even for 
high wages, but rather for secure and steady em- 
ployment at customary rates. That this desire is 
often uppermost in the struggles of individuals 
and organizations is undoubtedly true; though the 
relative ease with which work was to be found in 
normal times in the United States has prevented 
the question of insecurity from being as acute a 
problem as in Great Britain, for example. 

The principles of wage settlement that have 
been put forward contain but one measure which 
might prove useful in an attempt to modify the 
insecurity of the wage earner in a modern indus- 
trial community. They provide for the establish- 
ment of joint boards or councils in each industry 
which are intended to have those phases of indus- 
trial activity which effect the welfare of the wage 
earners under constant observation. These coun- 
cils might conceivably work out plans in different 
industries intended to steady the employment of 



A CONCEPT OF INDUSTRIAL PEACE 285 

the wage earners, and methods of insurance 
against the worst vicissitudes of their employ- 
ment. In the pottery trade of England, for ex- 
ample, the industrial council has been giving con- 
sideration to the question of an Unemployment 
Insurance Fund for the industry. The possibili- 
ties of cooperation between employers and em- 
ployed in that direction are genuine. The realiza- 
tion of any such plans will depend, of course, upon 
the growth of mutual trust, and upon the ability 
of all parties to work for a common end. They 
require that every important business man and 
labor leader be a statesman in the sphere of busi- 
ness. 

In the act establishing the Kansas Court of In- 
dustrial Relations, and governing its operations, 
there is a provision which gives the Court a power 
which might enable it to deal with the question 
of irregularity of industrial activity. It is new 
in the history of industrial regulation in this coun- 
try. It provides that the establishments covered 
by the act "shall be operated with reasonable con- 
tinuity and efficiency in order that the people of 
this state may live in peace and security and be 
supplied with the necessaries of life" ; it makes it 
unlawful for any establishment "wilfully to limit 
or cease operations for the purpose of limiting pro- 
duction or transportation or to affect prices for 
the purpose of avoiding any of the provisions of 
the act. 1 It further provides that such industries 

1 Sections 6 and 16 Act Creating Court of Industrial Rela- 
tions, Kansas, 1920. 



286 THE SETTLEMENT OF WAGE DISPUTES 

as are affected by changes in seasons, market con- 
ditions or other conditions inherent in the business 
may apply to the Court for an order fixing rules 
and practices to govern its operations. 

This provision may mean a great deal or very 
little, according as the Court and the higher courts 
interpret the idea of "reasonable continuity." If 
it is taken to mean simply that the enterprises 
covered by the act should not limit production in 
accordance with some agreement with each other 
in order to increase profits, or to fight the unions, 
it will have little or no importance as regards the 
question of security of employment. And that is 
probably the interpretation that will be given to 
it. It will be hardly possible to work out a plan 
for regularity of operation by mandate of a court, 
and under penalty. Such rules and practices as 
the Court may lay down will probably take 
cognizance of the laws of the market which ordi- 
narily govern business operations. To rule other- 
wise would mean embarking upon a comprehen- 
sive reform of business operations; it would neces- 
sitate the development of some other gauge of 
business operation than business profits. 

Only one case which has come before the Court 
has brought up this question of continuity of 
operation. The Court investigated a complaint 
that the flour mills at Topeka were reducing pro- 
duction. It found that the mills were running at 
sixty per cent, capacity; and that the cause of this 



A CONCEPT OF INDUSTRIAL PEACE 287 

reduced operation was a falling off in the flour 
market, due to world-wide economic changes be- 
yond the control of the industry and the Court. 
The Court found this limitation of production not 
unreasonable. It gave no sign of making any 
radical use of its powers to control the regularity 
of production, nor of interfering with the ordinary 
processes of business operation. This policy it 
tempered with concern for the workers — suggest- 
ing to the millers that they put their "skilled and 
faithful" employees on a monthly pay system. It- 
appointed a committee to draw up rules and regu- 
lations to be observed in the operation of the 
industry, and to keep it informed. 

5. — In the coming years there will take place in 
the United States much controversy and a great 
variety of experiments in wage settlement. To 
the realists of all parties, this course of controversy 
and experimentation will appear to be only a 
struggle for power. To the rest, it may appear 
that there are ideas at work; ideas springing 
partly from the example of political change, and 
partly from the fact that the industrial world has 
undergone such a rapid revolution. It is impossi- 
ble to predict the ideas which will have the most 
abiding force. It is impossible even to assert that 
society will make a satisfactory choice among 
them. 

In the present confusion of counsel, two rela- 



288 THE SETTLEMENT OF WAGE DISPUTES 

tively new ideas, in particular, appear to me to 
be likely to endure and be accepted by society. 
The first is the idea that the welfare of the wage 
earners in each particular industry is one of the 
major questions in the conduct of that industry; 
and that the wage earners should participate 
effectively in those activities of direction by which 
the conditions of labor are determined. The 
second idea is that the whole body of wage earners 
in industry should possess the means of checking 
the action of private enterprise, when they can 
prove clearly that the methods of production that 
are being pursued are wasteful either of human 
or of material resources. An example of such a 
protest is that of the English coal miners against 
the organization of their industry — which was one 
of the grounds for the appointment of the Coal 
Commission. It would not appear to be impossi- 
ble to reconcile the action of private investment 
and private enterprise with this concept of the 
right of the wage earners to exert control over the 
policy of production, in so far as they can estab- 
lish the fact that human or material resources 
are not being well applied — the general interest 
being the test. 

The main current of industrial change will be, 
in my opinion, in the direction indicated by these 
two ideas. And change in that general direction 
is, it seems to me, essential to the peaceful conduct 
of industry, for only in some such way will a sense 
of common interest be established — which sense 



A CONCEPT OF INDUSTRIAL PEACE 289 

alone can hold together an undertaking so de- 
pendent upon a division of function as is modern 
industry. Through all changes, it will remain true 
that effective production depends upon the will- 
ingness to work hard for the sake of working well, 
and upon the existence of strong habits of self- 
dependence. 



